Goldman Sachs Group Inc. will have another two years to separate derivatives trading from units that get federal backing, according to a letter to the bank posted on the Federal Reserve website.
The Fed said in the letter that the New York-based bank must determine whether to kill the swaps activity or move it to properly capitalized affiliates. Under the Dodd-Frank Act rule requiring the swaps push-out, interest-rate and some credit swaps can still be traded inside the bank.
“The potential impact of granting a 24-month transition period is less adverse than the potential impact of denying the transition period,” Robert Frierson, secretary of the board, wrote in the letter dated yesterday. Giving Goldman Sachs the transition time lowers “the probability of operational problems and market disruption,” Frierson wrote.
Dodd-Frank overhauled swaps trading in an effort to make the industry less vulnerable to a crisis such as the one that struck in 2008. The law requires equity, some commodity and non-cleared credit derivatives be pushed out of bank units with access to deposit insurance and the Fed’s discount window.
Andrew Williams, a spokesman for Goldman Sachs in New York, declined to comment on the extension.
Last month the Fed granted foreign-based U.S. banks the ability to ask for the 24-month transition periods under the 2010 law. That move and extension for Goldman Sachs averts a July 16 deadline for banks to cut off their swaps activities.
On June 12, the Office of the Comptroller of the Currency granted similar extensions to banks including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Morgan Stanley, HSBC Holdings Plc and U.S. Bancorp. Each company now has until July 2015 to come up with orderly ways to comply with the Dodd-Frank rules.