After the rollback of parts of the Dodd-Frank Act in December 2014, US banks have exposed themselves to risking derivative swap trades, according to US Democratic Senators. On Tuesday November 10, Elizabeth Warren, a Democratic Senator from Massachusetts, claimed that $10tn of those contracts remained on banks’ books, in a letter sent to financial regulators.
Warren called upon financial regulatory authorities to exercise their power to mitigate any risks that may arise
The Dodd-Frank Act is a large and ongoing piece of legislation, passed by President Obama in 2010, in response to the 2008 financial crisis. The reform is composed of thousands of pages and numerous provisions, which are intended to be introduced on an ongoing basis over a number of years.
The act had been subject to a number of challenges, primarily from Republican lawmakers, claiming it was overbearing and stifling to financial institutions. In December 2014, a new law effectively cancelled out parts of the act. As Forbes reported at the time, the partial roll back of one particular section of the Dodd-Frank Act will allow “big banks once again to use insured deposits and other taxpayer subsidies and guarantees to gamble in the derivatives markets – the very type of business that drove the 2008 financial crisis and the economic devastation that followed.”
As a result, rather than pushing such swaps off their books, banks have been able to expand them. This, according to Democratic lawmakers in the US, puts financial institutions and the whole economy in danger once again. In her letter, Warren called upon financial regulatory authorities to exercise their power to mitigate any risks that may arise.