New York House members are urging Congress to drop a controversial provision in the Wall Street overhaul that restricts banks' derivatives trading.
In a draft letter to lawmakers finalizing the legislation, the members say they have "serious concerns" about the provision sponsored by Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.). The provision aims to bar depository banks from also running derivatives desks. Umbrella bank holding companies would be able to own derivatives affiliates under the measure.
"We are deeply concerned by the very real possibility that, as a result of the Senate derivatives provisions, America's largest financial institutions will move their $600 trillion derivatives business overseas, at the expense of both the U.S. economy, as well as the economy of New York State and New York City," the lawmakers wrote. The letter is organized by New York Democratic Reps. Mike McMahon and Gary Ackerman.
Lincoln on Monday aimed to clarify her position that affiliates of bank holding companies would be able to operate derivatives desks. Those units would need to have separate pools of capital to support their trading operations.
The New York members argue that distinction does not ease their concerns.
"The effect of the Senate provision would be to force America's largest banks to spin off their derivatives trading activities, and would increase systemic risk by making it more difficult to regulate the derivatives market through undercapitalized corporate affiliates," the lawmakers wrote.
The derivatives business is highly concentrated among the largest Wall Street banks.