U.S. regulators threw a temporary bridge across the increasingly awkward gap between the idea of regulating the $600-trillion swaps market and the reality of actually doing it.
In a move that will give the European Union time to catch up with the United States, the U.S. Commodity Futures Trading Commission conceded on Tuesday what market observers have long known -- new swaps rules must be postponed.
The CFTC proposed delaying for months the effective dates of new rules overseeing the over-the-counter derivatives market, including credit default swaps like those that helped amplify the 2007-2009 banking crisis.
The U.S. agency's move came as French President Nicolas Sarkozy called on Tuesday for tighter controls over speculators he blames for rising food and energy prices.
The EU has trailed the United States in cracking down on commodities speculation and derivatives, prompting concern among policy-makers about an uneven pace of regulation clouding the overall outlook for new global oversight.
That concern would be somewhat relieved by the CFTC's action, as would worries among commodity and derivatives traders about complying with new U.S. rules.
Some of the new rules mandated by 2010's Dodd-Frank financial oversight law have taken effect. Some are still being debated. Others were to take effect automatically on July 16, one year after the passage of the sprawling legislation.
The trouble was the CFTC has not yet finalized many details surrounding the July 16 self-executing rules. Delaying them will give needed clarity for market participants and address legal concerns, the CFTC said.
U.S. and EU authorities are trying to impose the first thorough regulation of the vast and volatile off-exchange swaps markets. The idea is to force more trades onto exchanges or electronic trading platforms, as well as through clearinghouses and data repositories, to make the markets more accountable.
Widespread ignorance of the swaps exposures of troubled investment firms such as Lehman Brothers and former mega-insurer AIG greatly aggravated the 2007-2009 crisis that led to massive taxpayer bailouts of Wall Street.
FDIC BACKS BANK CAPITAL FLOOR
Separately, U.S. banking regulators on Tuesday approved a final Dodd-Frank rule requiring large banks to meet the same minimum capital standards as community banks.
The rule implements the so-called Collins amendment of Dodd-Frank, intended to set a capital floor for all U.S. banks and ensure that large institutions cannot be less well-capitalized than their small-bank counterparts.
The Federal Deposit Insurance Corp approved the measure generally affecting banks with more than $250 billion in assets, such as Bank of America, Citigroup, Wells Fargo and JPMorgan Chase.
Another central part of the global financial regulation crackdown is forcing banks to hold more capital on their books so they can weather future troubles. Inadequate capitalization was also a distinct feature of the 2007-2009 crisis.
Shortly before the FDIC's action on Tuesday, Britain's financial services minister warned that tough new global bank capital rules must be implemented in full in the EU and the bloc's banking test must not be diluted.
The European Banking Authority is completing stress tests of banks' books, with results due in early July. A robust, credible test will help restore confidence in the banking sector, Mark Hoban told a conference.
It's in no one's interest to undermine the stress tests by watering them down, he said.
The EU is due to publish a draft law next month to implement a global set of rules known as Basel III, to increase the regulatory capital cushions banks must hold from 2013.
(Additional reporting by Huw Hones and Sudip Kar-Gupta in London; John O'Donnell and Charlie Dunmore in Brussels. Writing by Kevin Drawbaugh; Editing by Tim Dobbyn)