The Senate Banking Committee held a hearing today to consider issues related to the implementation of Dodd-Frank’s derivative rules and the Volcker Rule (see FSM Report PROPTRADE10) in light of JPM’s trading losses. Chairman Johnson (D-SD) called JPM’s trading losses a “wake-up call” for Congress and regulators, while Ranking Member Shelby (R-AL) advised regulators not to micro-manage financial entities and criticized the SEC and CFTC for uncertainty due to the slow pace of rulemaking. SEC Chairman Schapiro and CFTC Chairman Gensler testified that their agencies are conducting formal investigations of JPM’s trading losses and, importantly, are reconsidering their approach to the Volcker Rule’s hedging and market making exemptions. Under questioning from Sen. Merkley (D-OR), they added the liquidation exemptions in Volcker to this mix and, under fire from other senators, also signaled that new rules related to extraterritoriality and cross-border operations will take a stern tone on structures that could permit regulatory arbitrage. This report analyzes today’s hearing.

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