The US Senate s sometimes called the World’s Greatest Deliberative Body. At times-most times, in fact-it seems that it would be more apt to call it the Deliberative Body With the World’s Greatest Proportion of Room Temperature IQs. Many notable dimwits come to mind-Barbara Boxer, for instance. But the dearly departed (from the Senate, anyways) Blanche Lincoln was oh-so-special in her dimness.
As a sort of parting gift prior to her electoral rout in 2010, Blanche succeeded in inserting the eponymous Lincoln Amendment into Frankendodd. This was the “swaps push out” provision, which precluded any “swaps entity” from receiving assistance from the Federal Reserve. This requires banks to “push out” dealing in derivatives to separately capitalized subsidiaries that have no access to the Fed discount window, or other sources of federal support.
Crucially, the Lincoln Amendment was limited: basically, only equity derivatives, some credit derivatives, and commodity derivatives (with the exception of gold) were pushed out. Banks were allowed to maintain their bread-and-butter rates derivatives business, as well as some of their credit trading businesses. I guess the theory was that commodities are scary risky, but banks can’t jeopardize themselves by playing in interest rates. Or something.
Well, that’s true of US banks, anyways. But due to the meticulous drafting that characterizes Frankendodd, branches of foreign banks cannot avail themselves of the same exemptions. This includes behemoths like Barclays and Deutsche Bank.
So now the Fed is trying to clean up after Congress, endeavoring to find ways to blunt the effects the provisions of the Lincoln Amendment on foreign banks. Easier said than done, because despite the fact that “Ms Lincoln called her amendment’s treatment of foreign banks’ uninsured US branches a ’significant oversight’ that was “unfortunate and clearly unintended. . . . the language of the legislation is clear, regulators are unable to use [Lincoln's] statements on the Senate floor to unilaterally change the implementation of the law. ”
Good times. Good times. Just another of the land mines lurking in Frankendodd. Think of how many more are to be found. And how many are buried in Obamacare.
Like I said. Good times.