Who cares about relaxing Dodd Frank?  …the swaps push-out rule — section 716 of Dodd-Frank, which would require banks to book their derivatives in subsidiaries that are not their insured depository institutions was killed as part of the new deal to fund the government.

Why put financial regulation in an unrelated spending bill? Why rewrite financial regulation based on a draft by Citigroup lobbyists? – but let’s spend a minute on why it’s not worth caring about.
First: The rule doesn’t apply to most derivatives. Federal Deposit Insurance Corporation Vice Chairman Tom Hoenig:  “In fact, under 716, most derivatives — almost 95% — would not be pushed out of the bank. That is because interest rate swaps, foreign exchange and cleared credit derivatives can remain within the bank. In addition, derivatives that are used for hedging can remain in the bank. The main items that must be pushed out under 716 are uncleared credit default swaps (CDS), equity derivatives and commodities derivatives. These are, in relative terms, much smaller and where the greater risks and capital subsidy is most useful to these banking firms.”

Can equity derivatives bring down a bank?  Uncleared CDS has a rough track record, though the market is slowly moving away from it in general. But the big derivatives risks were going to be allowed to remain in the depository banks anyway.

Pushing out derivatives into non-insured subsidiaries doesn’t make them go away. Defenders of the rule cite the example of AIG, which foundered on uncleared CDS and brought down the financial system. AIG: not an insured bank! Neither was Lehman! The people arguing for the swaps push-out rules are not people who, in other contexts, would say that only insured depository banks get any government support. They’d say that “too big to fail” banks (you know: derivatives dealers) pose risks to the financial system even in their non-bank subsidiaries, risks that lead to an implicit expectation of government support beyond the explicit FDIC insurance. Here, they are right. If JPMorgan blows itself up trading CDS, that will be a problem for everyone, whether it happens in the insured bank or some uninsured subsidiary. The rule won’t stop that. The rule is (was?) fine, but it’s not worth getting upset about. This is all theater.