The chief executives of 18 large U.S., European and Japanese banks are set to agree in principle at a meeting at the Federal Reserve in Washington, D.C., on Saturday to wait up to 48 hours before seeking to terminate derivatives contracts and collect associated payments from a troubled financial institution, the Wall Street Journal reported today. A delay would give regulators time to transfer a failing firm’s assets and some obligations into a new “bridge” company, removing the need to unwind derivatives contracts or undertake asset sales during times of turmoil. The proposed changes are aimed at helping to end the problem of dealing with “too big to fail” banks that are so large and intertwined that their collapse threatens to trigger broad economic damage or market tumult. The changes won’t go into effect until 2015, and are significant because they would force firms to give up certain rights under the law. The derivatives in question, called swaps, constitute a $710 trillion market that was snarled by the September 2008 bankruptcy filing of Lehman Brothers Holdings Inc. The contracts are used by firms to hedge or speculate on everything from moves in interest rates to the cost of fuel.
