Thomas Hoenig, vice chairman of the Federal Deposit InsuranceCorp. (FDIC), is fighting congressional efforts that have madeprogress in freeing large banks from having to hold collateralagainst derivatives used internally.

Hoenig has cautioned lawmakers in meetings and in a letter lastweek about the risks of giving the firms a pass from postingcollateral in trades with their own affiliates. In the July 16letter addressed to members of the House and Senate on the banking,appropriations, and agricultural committees, he said requiring thiskind of collateral could have shielded JPMorgan Chase & Co.'smain bank from the London Whale trading losses that totaled morethan US$6 billion.

“Withoutmargin exchanged for these trades, affiliates often enter intouncleared swaps transactions with the banks,” Hoenig wrote. “Theseaffiliates can often operate with less capital and liquidityreserves than the market would otherwise require, as marketparticipants treat these affiliates as if they were an extension ofthe bank.”