WASHINGTON — Wall Street bankers and some of the world’s top finance ministers are waging a bitter international campaign to block Washington financial regulators from extending their policing powers far beyond the nation’s shores.

The effort — centered on oversight of the $700 trillion marketplace of the financial instruments known as derivatives — is just one front in the battle still being waged nearly three years after Congress passed the Dodd-Frank law, which revamped financial regulations in the United States in hopes of curtailing the risky trading practices blamed for the global financial crisis in 2008.

Industry players have spent tens of millions of dollars to avert, delay or weaken new rules that are being drafted as part of the law. Members of Congress from both parties have joined in the effort, directed at an obscure but increasingly powerful agency, the Commodity Futures Trading Commission, which has written and must approve some of the most contentious provisions.

Banks and overseas regulators are resisting an agency proposal, intended to go into full effect as early as mid-July, that would require overseas offices of American-based banks, foreign institutions and hedge funds to turn over information on foreign trades if they involve United States customers, or are guaranteed by a financial institution with American ties, requirements that the industry calls redundant and excessive.

The battle — led by high-powered lawyers and lobbyists, including former top regulators and Congressional staff members, like a former aide to retired Representative Barney Frank, a chief author of the law — has played out in hundreds of meetings with Gary Gensler, the chairman of the commission, other commission members and major players on Capitol Hill.

It has divided Democrats in Congress, caused strains in the commission and provoked public charges by industry officials that Mr. Gensler is overreaching his authority and private complaints that he is “reckless” and “stubborn.”

A former investment banker, Mr. Gensler defends his proposals, arguing that too many bad bets in the global derivatives market can be traced to overseas locations — including the $6 billion loss last year by a JPMorgan Chase trader called the London Whale — and threatened markets in the United States.

“It would be letting down the American public if we said, we are just about to complete the task but now, let’s retreat,” Mr. Gensler said in an interview. “If we don’t do this right, we will blow a hole in the bottom of the boat of reform.”

Industry officials argue that the proposals, called the cross-border guidance, will inevitably produce conflicts with foreign regulators and perhaps even drive trading away from Wall Street banks to competitors overseas.

“We should all care, because that cost will have to be passed on, in the form of higher prices for products sold to consumers or a lower return for investors,” said Kenneth E. Bentsen Jr., a former House lawmaker turned financial industry lobbyist, whose organization Sifma has urged Mr. Gensler to compromise on the cross-border rules.

Some of the strongest objections have come from foreign regulators, including officials from Britain, Russia, Japan and Germany, who complained about the plan last month in a letter to Treasury Secretary Jacob J. Lew. Global markets, they said, “will not be able to function under such burdensome regulatory conditions,” advocating instead that the United States agree to respect rules each nation adopts, assuming they are reasonably compatible.

Mary L. Schapiro, who recently stepped down as chairwoman of the Securities and Exchange Commission, said she admired Mr. Gensler for his doggedness. But, she noted, “he believes very strongly in the positions he takes — that does not always lend itself to compromise quickly.”

The S.E.C., which has jurisdiction over a much smaller share of derivatives trading than Mr. Gensler’s agency, is scheduled to consider a narrower cross-border requirement on Wednesday. With American regulators in disagreement, the industry could have more leverage.

The role of Mr. Gensler’s agency greatly expanded under Dodd-Frank, which called for significantly tighter regulation of derivatives, used by a broad array of companies to help manage risk. An airline, for instance, uses them to hedge against the fluctuating cost of jet fuel. One form of derivatives, credit-default swaps, helped topple the giant insurer American International Group in 2008, deepening the financial crisis.

In the fight over the law’s provisions, the commission has been outmatched, said Bart Chilton, one of three Democratic appointees on the panel. “They have really unlimited resources,” he said of industry officials. Rules expected to take one year in the making have stretched out to three.

“It has created what I call dysfunction junction,” he added.

Bank of America, Citigroup and JPMorgan Chase were among the first to weigh in. Kenneth M. Raisler, a former general counsel at the commodity commission and now a partner at the New York-based law firm Sullivan Cromwell, said the plan would damage his clients in overseas markets, as foreign customers would start to avoid American banks. JPMorgan Chase alone had $70 trillion of derivatives outstanding at the end of last year, a large portion of which were booked overseas.

Annette L. Nazareth, a former Securities and Exchange Commission member and now a lawyer at Davis Polk Wardwell, whose clients include Goldman Sachs and an industry trade association, said that foreign regulators, in most cases, should be able to oversee transactions that take place in their own nations, including those handled by American-based banks.

“You might have Citibank London doing business with a Swiss branch of a Dutch bank,” Ms. Nazareth said in an interview. “That is the kind of stuff that is coming up every day.”

The protests by the banks have been reinforced by dozens of members of Congress, who have written letters complaining to Mr. Gensler, introduced legislation to try to block the cross-border plan and questioned him about the proposal.

Ben Protess contributed reporting.

Article source: http://www.nytimes.com/2013/05/01/business/banks-criticize-strict-controls-for-foreign-bets.html?partner=rss&emc=rss