WASHINGTON The head of the top U.S. futures regulator stopped short on Monday of supporting a controversial proposal that would require banks to spin off swaps desks, although he endorsed the Senate's financial reform bill as a "strong product."
Gary Gensler, chairman of the Commodity Futures Trading Commission, said Democratic senators were close to finalizing their bill, which will bring the $450 trillion over-the-counter (OTC) derivatives market under regulators' watch for the first time.
Just before dashing off to Capitol Hill to meet with key Senate aides working on merging proposals from the Senate Banking and Agriculture committees, Gensler told the Reuters Global Financial Regulation Summit he believes the bill will include the elements he has pushed to reduce market risk.
The plan faces a key procedural vote on Monday. Republicans have said they plan to block it.
The Senate Agriculture Committee version of the bill includes a requirement for banks to divest their swaps operations, to prevent the need for future bailouts, should trades go wrong.
Gensler said he supported the overall bill. But asked whether he thought the bill contained enough safeguards if the spin-off provision were dropped, Gensler declined to directly answer.
"I know I'm not answering your question," he said.
"What the Senate Agriculture Bill recognizes is that the American public is tired of bailouts," Gensler said.
"There's a perverse outcome of this crisis, that somehow the markets perceive that in the next crisis, these large financial institutions, the taxpayers will stand behind them. And we have to sever that belief."
SHEDDING LIGHT ON DARK STREETS
Gensler has been a central figure on Capitol Hill as lawmakers weigh plans to regulate the derivatives market, and most of his main ideas have been adopted by Senate Democrats.
"I think we're poised to have... very strong derivatives legislation taken up on the floor of the Senate," he said.
Gensler has pushed for mandatory trading for swaps on exchanges or other platforms to improve transparency, and mandatory clearing for the broadest possible swath of the contracts.
"Just like a street light protects you from dark and dangerous highways, we need something to protect us from the dark and dangerous market that is right now is OTC derivatives," Gensler said.
While corporate swaps users in general oppose the clearing requirements, Wall Street swaps dealers oppose the exchange-trading requirements, Gensler said.
"I found most corporate end-users would like to get public market transparency. What they'd like to avoid is the clearing requirement," Gensler said.
"What Wall Street would like to do is have no trading requirement, and that's because it shifts the information advantage," he said, adding: "I think that only Wall Street benefits from lack of transparency."
(Reporting by Roberta Rampton and Christopher Doering; Additional reporting by Karey Wutkowski, Kristina Cooke, Jonathan Spicer, Ann Saphir, Alden Bentley, Simon Denyer, Martin Howell; Editing by Tim Dobbyn)