After a risky bet on the oil industry went the wrong way last month, Capital One Financial Corporation sought relief from regulators, a step that raised eyebrows among public watchdogs and Wall Street analysts.
But on Friday the bank told MarketWatch that it intends to withdraw the request, saying it is not needed.
But when the price of crude oil plunged by more than half in the last few months after a global price war between Saudi Arabia and Russia, the value of those derivatives changed sharply. “We asked the CFTC for temporary relief from the designation of Major Swap Participant because commodity price volatility could temporarily cause us to reach the threshold triggering MSP registration,” a Capital One spokesperson told MarketWatch in a statement.
The press attention around that decision is a signal to broader financial markets that Capital One was dabbling in business lines it’s not known for, said Chris Whalen, a long-time independent banking analyst. “If they do have other sources of risk, it adds complexity to understanding the stock,” Whalen said. We all understand consumer finance, but this... this is in the territory of a big investment bank like Goldman Sachs or Morgan Stanley.”
“It’s not the job of the CFTC to bail out the oil and gas sector, it’s to protect against systemic financial risks,” Slocum told MarketWatch. Derivatives were the same financial instruments that brought the financial system to its knees in 2008, and the Dodd-Frank regulation passed a few years later charged the CFTC with making sure nothing like that happened again, he pointed out.
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