(CN) – A federal judge dealt a blow to big-banking interests by upholding a policy extending regulatory reach to the overseas subsidiaries of U.S. financial firms involved in derivative swaps.
The Commodity Futures Trading Commission (CFTC) announced a new policy regarding cross-border derivative swaps in July 2013, trying to address a problem made clear by the 2008 financial crisis: that the investment decisions of foreign offices had major ramifications for U.S. financial firms.
American International Group nearly failed because of the risks incurred by swaps made by its London-based subsidiary, AIG Financial Products – but the U.S. government bore the burden of bailing the company out.
And Lehman Brothers, which did not benefit from a government bailout, similarly guaranteed nearly 130,000 derivative contracts held by one of its London-based subsidiaries when it filed for bankruptcy in 2008.
The derivatives market has since rebounded from the crisis, and financial firms have…