Senate minority leader Mitch McConnell meets with reporters on Capitol Hill in Washington. Photograph: J Scott Applewhite/AP
By Heidi Moore
The Guardian
Congress has agreed to use federal deposit insurance, which was designed to protect the savings accounts of consumers, to cover risky trading by the nation’s biggest banks.
In a small provision in the budget bill, Congress agreed to allow banks to house their trading of swaps and derivatives alongside customer deposits, which are insured by the federal government against losses.
The budget move repeals a portion of the Dodd-Frank financial reform act and, some say, lays the groundwork for future bailouts of banks who make irresponsibly risky trades.
“It’s both a stealth move and indefensible,” said Dennis Kelleher, the head of Better Markets, a group that argues for great oversight of banks. In a note to clients, he later called it “a sneaky, midnight repeal”.
The White House said on Wednesday it “strongly opposes” the provision.
“The main purpose…is to reauthorize the Terrorism Risk Insurance Program; this bill should not be used as a vehicle to add entirely unrelated financial regulatory provisions,” the White House said.
“If Wall Street gets the upside in big bonuses from its high-risk derivatives deals, then it should also have to pay the downside for any losses,” Kelleher wrote.
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