Large banks to meet with Fed over derivatives
By Andrew Ackerman, Katy Burne , and Victoria McGrane
Published: Oct 8, 2014 1:42 p.m. ET
Global regulators are on the brink of a victory against “too big to fail, “ as giant banks prepare to change how they handle their obligations with faltering trading partners in a bid to bolster the financial system.
Chief executives of 18 large U.S., European and Japanese banks are expected to agree at a meeting at the Federal Reserve in Washington Saturday to wait up to 48 hours before seeking to terminate derivatives and collect associated payments from a troubled financial institution, said people familiar with the banks.
The derivatives in question, called swaps, constitute a $710 trillion market that was snarled by the September 2008 bankruptcy filing of Lehman Brothers Holdings Inc. The contracts are used by firms to hedge or speculate on everything from moves in interest rates to the cost of fuel.
The proposed changes are the latest effort to avoid a replay of the market mayhem that followed the demise of Lehman.
U.S. regulators developed a plan after the crisis, enshrined in the 2010 Dodd-Frank financial overhaul, that would help to avoid a new crisis by seizing a failing megabank, putting its parent company in bankruptcy and keeping its operating units open around the globe to forestall the liquidity runs and general panic that characterized the fall of 2008.
Regulators in other countries are developing similar approaches to dealing with failing financial firms.