So now they can go full hilt again which caused The 2007 banking crisis. And who is on the hook if derivatives trades go south ? Well The Taxpayer is. Even the FDIC is not even funded properly.
Sheila Bair, who chaired the FDIC for a five-year term that included the financial crisis, called the two changes “ill-advised.”
a former chair of the FDIC, it won’t surprise you to hear me say that
that $40 billion dollars that will no longer be in banks to protect them
against derivatives exposures” will likely increase risk to the
government, Bair said Thursday on CNBC’s Squawk in the Street.
As unsecured creditors, depositors and bondholders are subordinated to
derivative claims. Derivatives are the investments that banks make among
each other, which are supposed to be used to hedge their portfolios.
However, the 25 largest banks hold more than $247 trillion in
derivatives, which poses a tremendous amount of risk to the financial
system. To avoid a potential calamity, the Dodd-Frank Act gives
preference to derivative claims.
The Volcker Rule is a federal regulation that generally prohibits banks
from conducting certain investment activities with their own accounts
and limits their dealings with hedge funds and private equity funds
also called covered funds. The Volcker Rule aims to protect bank
customers by preventing banks from making certain types of speculative
investments that contributed to the 2008 financial crisis