Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) Fighting Derivatives Provision

Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC). the five banks benefiting the most from trading derivatives, are out in full force to fight against the approval of a provision originated from Arkansas Senator Blanche Lincoln, which would prohibit the banks from trading derivatives.

Executives from the giant financial institutions, along with trade groups and lobbyists, have descended upon Washington to fight the legislation, which would further weaken the industry.

The Office of the Comptroller of the Currency has reported the amount of profit generated from derivatives by the banks came to $22.6 billion in 2009, to give an idea of what is at stake.

Even former Federal Reserve Chairman Paul Volcker opposes the legislation, saying, “The provision of derivatives by commercial banks to their customers in the usual course of a banking relationship should not be prohibited.”

what is just as concerning for bankers, is this is taking the focus off of other potential prohibitions, like banning proprietary trading, which is when banks use their own capital to make trades. In that case Volcker supports the ban.

As far as using derivatives, they have become an important part of the strategies companies us to hedge against a variety of risks. To essentially move them from the marketplace would be a big blow to how business is conducted.

While it wouldn’t completely eliminate the market for derivatives, the argument from the banks is it would make them less safe by banning them from being traded by them, as the trading would be done by foreign banks and other financial institutions, which don’t have the type of oversight American banks have.