Goldman Sachs and Derivative Regulation

In the wake of the $2 billion (or $4 billion) loss at JP Morgan, the Federal Reserve which regulates the banks is implementing stricter capital requirements and making rules regarding complex financial derivatives.

Derivatives played a key role in the financial crisis but have been protected from regulation.

As Senator Blanche Lincoln said, "in my view, banks were never intended to perform these activities."

If derivatives disappeared altogether from the financial system, the system would be much safer.

Big Banks Double Whammy:  New Asset Management Rules and FHA Subpoenas
By Matt Schilling - Seeking Alpha
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  When the news broke that JPMorgan Chase (JPM) lost what is now closer to $4 billion in derivatives trading, the Federal Reserve didn't take it lightly. As a result, it has implemented a fresh set of rules that state the banks must maintain a level of common equity equal to at least 4.5% of their risk-weighted assets and also have 2.5% set aside for a capital conservation buffer. The Fed also finalized rules specifically targeting banks that hold at least $1 billion dollars in complex financial derivatives. If JPM had those systematic regulations in place prior to the trades executed by Bruno Iksil the losses may not have been as bad as currently calculated. When the news broke with about an hour left in the trading day, Bank of America (BAC), Citigroup (C), and Goldman Sachs (GS) all fell sharply. The sell-off was due to the fact that these banks won't be able to take as much risk as was once thought and their positions in such places as derivatives markets could become more conservative.

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