Rearguard action, unchallenged by regulators, will allow pillage to continue.
Treasurers who believe that derivatives houses have their best interests at heart—rather than that of their employees, who carry home some 40-50 percent of revenues—can rejoice. The New York Federal Reserve just blessed the most anodyne talking points that derivatives house flaks can devise in their ongoing attempts to ward off regulation and price transparency. The unctuously Geithner-ian press release the NY Fed issued is headlined: “New York Fed Welcomes Further Industry Commitments on Over-the-Counter Derivatives” and ticks through the usual dispiritingly non-tractable talking points:
- Market Transparency. The market participants will provide regulators with data and analysis to help evaluate how greater price transparency in the OTC derivatives markets might improve financial stability.
- Central Clearing. The market participants will expand central clearing in both the credit and interest rate derivatives markets through expanding the range of supported products and effecting broader market participation in clearing.
- Standardization. The market participants will work with supervisors to evaluate the levels of standardization in credit, equity, and interest rate derivatives products and processing and to prioritize the areas which would benefit from greater standardization.
- Collateral Management. Following the development of best practices in collateralizing bilateral OTC derivative trades, the market participants have committed to implement these best practices to help reduce counterparty credit risk.
Of course, none of this requires derivatives houses to do anything beyond what they’re already doing, but regulators can point at it as a sign of “progress.”
Caught between the pincers of usurious OTC rates and hidden fees on the one hand and the hedge accounting standards on the other, treasury is clearly leaning toward the former, since hedging costs normally don’t need to be broken out and revealed to the world in each 10Q. Shareholders may eventually wake to this Hobson’s choice—and the issue might then go against banks. Nonetheless, those who would like less of their capital to go toward bank bonuses and more to go toward shareholder value-added have reason to complain—despite the fact the regulators they fund with their taxes to protect them from predatory banks are in bed with the derivatives industry.