Bankers Snap Up Swaps as Regulation Looms

Photograph by Timothy A. Clary/AFP/Getty Images

JP Morgan Chase headquarters in New York.

The bankers are getting nervous.

The talk in Washington about heightened regulation — and what seems like an increasingly real risk that talk may translate into action this time — has investors buying more credit-default swaps on Wall Street banks. In fact, investors are snapping up more credit default swaps on banks than any other companies right now.

Contracts tied to the debt of Goldman Sachs, JPMorgan, Morgan Stanley and Bank of America were the most traded among companies last week, with a combined gross notional amount of $7.45 billion, according to the Depository Trust & Clearing Corp.

With the SEC looking into the Facebook IPO and Washington leaders concerned about oversight in the wake of JPMorgan’s $2 billion trading loss, the scrutiny is raising more than just eyebrows. Investors are looking for insurance against the chance that tighter regs and the European debt crisis will cut into the banks’ revenue. Swaps insuring an average $470 million of Goldman Sachs’s debt were traded each day last week, double the past month’s average of $230 million, according to Bloomberg’s Abigail Moses.

“People now fully believe regulators are in charge and will get to push things through, and there’s a real risk they overregulate,” Peter Tchir, founder of New York-based hedge fund TF Market Advisors told Bloomberg.

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