Magazine article American Banker

D'Amato: No Need for Derivatives Legislation

Magazine article American Banker

D'Amato: No Need for Derivatives Legislation

Article excerpt

WASHINGTON -- Presiding over his first hearing as chairman of the Senate Banking Committee, Sen. Alfonse D'Amato expressed concern on Thursday about bank derivatives activities but reaffirmed his view that legislation is not needed.

Most lawmakers on the panel echoed the New York Republican's views, and sided with regulators and administration officials who also argued against new laws at the hearing.

"We cannot by legislation stop dumb stewardship," said Sen. Christopher S. Bond, R-Mo., alluding to Orange County Treasurer Robert Citron, whose investment strategies, involving derivatives, ultimately lost $2 billion of the county's $7.8 billion portfolio.

"We don't need more regulation, we need less."

Nevertheless, Sen. D'Amato expressed concerns about derivatives transactions in federally insured banks.

"I don't want to have a situation where we have a debacle where we wind up one morning reading that we've got a $2 billion or $3 billion loss in some institution as a result of highly leveraged transactions within the banks," he said.

Federal banking and market regulators testifying at the hearing reiterated that they have all the power they need to supervise the use of derivatives adequately.

"It would be a serious mistake to respond to these developments by singling out derivative instruments for special regulatory treatment," said Federal Reserve Board Chairman Alan Greenspan. "Such a response would create artificial incentives to structure transactions on the basis of regulatory rules rather than of the economic characteristics of the transactions themselves. …

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