We learned some of the broad outlines of where reform needs to take place from the second panel: leverage requirements, derivatives reform and the silo-ing out of business lines.
Much of the reform, however, is deeply technical: "Maintain the requirement that derivatives be traded on public exchanges!" doesn't fit on a placard.
Bank of America estimates that $4.5 billion of cash and collateral requirement on derivatives would be needed to cover a one-notch downgrade, but added that it had already posted $2.9 billion of that with customers.
This (K x)) is the lowest-order polynomial which satisfies the requirement that derivatives up to the third order is zero for (x=0) and 1 (i.e. the highest-order term of the lowest-order polynomial is the seventh, because there are eight boundary conditions at (x=0) and (x=1)).
For instance, the bill's requirement that "derivatives" be traded on transparent public exchnages instead of privately by a few big banks, will cost the biggest Wall Street banks $20 to $40 billion a year.
It also makes sense for regulators to continue toughening collateral and capital requirements for derivatives, including credit-default swaps.
He said regulators should be able to set minimum margin requirements for derivatives contracts to influence the "degree of leverage in the shadow banking system".
What is needed are requirements for derivatives to be traded on transparent exchanges — which would have prevented the trades from piling up without notice.
The new law calls for the S.E.C. to draft regulations that could, for example, govern corporate disclosure of executive compensation, allow shareholders to nominate candidates for company boards, tighten oversight of credit rating agencies and, together with the Commodity Futures Trading Commission, impose new capital and margin requirements on derivatives trading.
She also met several times with the Treasury Department to talk about the Consumer Financial Protection Bureau, capital and liquidity requirements and derivatives.
