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Actually, the regulator provides netted out data so there's no trillions of exposure. And Dodd-Frank as well as standard FDIC law permits the FDIC to move assets and obligations of the institution to a newly created institution to protect insured assets. In fact, Dodd-Frank has a specific provision to permit a 1 day hold on all collateral seizure so that the regulators can do this more conveniently.  Furthermore, FDIC is required by law and certainly empowered to require more cash to be kept by depository banks to meet possible collateral calls. So transferring derivatives to the depository bank from the holding company may actually cause banks to have to increase their capital holdings.

http://occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq111.pdf

by rootless2 on Sat Dec 10th, 2011 at 07:26:13 PM EST
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Finally, if you read the article carefully, you can see that it was a lot less than $50T that was transferred and that it is standard procedure for banks to have derivatives in the depository branch. That "story" was just scaremongering - which like most of similar crap appears designed to distract people from underlying issues of asset allocation, income/wealth inequality, and corporate organization that might be more troubling to Bloomberg than faux-scandals.
by rootless2 on Sat Dec 10th, 2011 at 07:59:44 PM EST
[ Parent ]
Dodd-Frank has a specific provision to permit a 1 day hold on all collateral seizure

That is more reassuring...

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Dec 12th, 2011 at 09:08:53 AM EST
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