November 15, 2010
Wall Street reform is an issue that will impact all Americans. From the fluctuations in the job market, to the ability to purchase a home, to the way in which we look at retirements, these reforms will shape our future generations. For this reason, I urge you to uphold the intent of these new regulations as they move through the regulatory process.
One of the major intentions of these new regulations was to reign in the derivatives market by mandating that the exchange of derivatives be conducted through a third party clearing house. In order to keep the clearinghouses uninfluenced by the companies for whom they processed these exchanges, ownership interests were limited to a maximum of 20% by any one company and were further limited to a maximum of 40% total that could be held by any number banks whose net worth exceeded $50 Billion. This helped prevent them, both individually and collectively, from controlling the clearinghouses.
But now with the consideration of the 5% Rule as an alternative standard for clearinghouses, it opens a backdoor to such abuses. While limiting the ownership any one organization can hold to 5% seems to even more effectively prevent corroboration of the clearinghouses by their clientele, this rule does not limit the total shares that can be held by big banks at all. By working together, such banks could owner enough shares of said clearinghouse to recklessly push through their trades without accountability, just as they did in the years leading up to the crash.
The last thing our country needs is a 2nd recession on the heels of the first, but so long as loopholes persist for big banks to bypass the regulations that should be set upon them, that remains an everpresent risk. I hope the commission will close these loopholes, eliminating the 5% Rule and retaining the 20/40 Rule as the sole standard for clearinghouse ownership.