Treasury’s decision to exempt foreign exchange swaps and forwards creates a large unjustified loophole in derivatives regulation. 

During the 2008 financial crisis, the market for foreign exchange swaps and forwards collapsed along with the other markets.  This required the Federal Reserve Bank to bail out the foreign exchange markets with $5.4 trillion in the three months following the Lehman Brothers bankruptcy.  These are facts supported by independent analysis detailed by Better Markets in several letters and meetings with the Treasury as well as in an Op Ed.  All are attached below.

Regrettably, this exemption is a loophole that Wall Street’s financial engineers will undoubtedly exploit.  It is an early Christmas gift to Wall Street and a piece of coal to American taxpayers who will be at increased risk of having to fund yet more bailouts in the next crisis.