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January 30, 2012

Banks Fight to Exempt Half of Swaps Books

More than half of the derivatives- trading business of Goldman Sachs Group Inc. (GS), Morgan Stanley and three other large banks could fall largely outside the Dodd- Frank Act if they succeed in lobbying regulators to exempt their overseas operations, government records show.

The debate over the reach of Dodd-Frank has been among the most contentious aspects of the regulatory overhaul enacted by President Barack Obama after the 2008 credit crisis. The banks have met with regulators, testified to Congress and filed dozens of letters contending that they will suffer a competitive disadvantage if the regulations apply to their foreign arms.

Banking lobbyists have been gaining traction with their argument that a combination of U.S. supervision of their holding companies and foreign supervision of their operations abroad is sufficient to oversee risk to the financial system.

While the banks haven’t publicized how much of their swaps business is overseas, they file quarterly statements to the Federal Reserve. A Bloomberg News analysis of the filings shows that Goldman Sachs had 62 percent of its $134 billion in fair- value derivatives assets and liabilities in non-U.S. branches or subsidiaries for international banking as of Sept. 30, while 77 percent of Morgan Stanley (MS)’s $101 billion was in non-U.S. operations.

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