In February, Treasury Secretary Timothy Geithner met with the CEO and two top-level executives from the London-based bank HSBC to discuss the issue of foreign exchange swaps.

The bank, which has a thriving foreign exchange business, wants Geithner to exempt such swaps from new rules designed to bring transparency to the derivatives market. Under the Dodd-Frank financial law, Geithner was given authority to make this decision, which he is expected to announce any day.

Amounting in the trillions of dollars per day, foreign exchange swaps are used in business to hedge bets on transactions involving different currencies. Typically, two parties will make an agreement to exchange currencies at a certain rate at a particular time in the future. In this way they hedge risk that an exchange rate may change in a way that would hurt one of the parties. At the height of the financial crisis, in October 2008, the Federal Reserve Board injected $2.9 trillion into the foreign exchange markets to help stablize them, according to analysis by the Wall Street watchdog group Better Markets.

Geithner reported meeting on February 10 with HSBC Holdings CEO Stuart Thomson Gulliver; HSBC Finance Corporation CEO Niall Scott Kilgour Booker, and former Goldman Sachs president John Lawson Thornton, now an HSBC board member.

The meeting between Geithner and the HSBC executives was one of two Geithner has had with representatives of banks on the issue of foreign exchange swaps, according to meeting logs recently released by the agency. Another meeting in January featured a group of 19 CEOs and executives from such institutions as Barclay's and Credit Suisse.

Other Treasury officials have also met with outsiders on foreign exchange swaps. Six out of seven of those meetings were with representatives of large banks and financial institutions, such as Citi, Blackrock, Goldman Sachs, Barclays and Morgan Stanley. One of the meetings, on November 20, was with a range of consumer groups, unions, and academics--including Better Markets--which has pressed against an exemption.

The request for comments posted by Treasury last fall drew dozens of comments, most from banks and financial institutions that support an exemption. Comments also came from non-financial groups such as Philip Morris and 3M. The Coalition of End Users of Derivatives, which counts large trade associations and companies as members and has been pressing for a carve out from derivatives rules, also weighed in.

Among the dissenters were groups such as Americans for Financial Reform, a coalition whose members include large unions such as the AFL-CIO and AFSCME as well as consumer and public interest groups. Three Democratic senators--Carl Levin, D-Mich., Maria Cantwell, D-Wash., and Tom Harkin, D-Iowa, also wrote in to oppose an exemption.

"No justification for an exemption is evident," states the letter from Cantwell and Harkin. "Any broad exclusion from the law will weaken comprehensive regulation of the derivatives market, and create opportunities to structure swap transactions to evade regulation."

The banking and financial industries, in contrast, have argued that foreign exchange swaps are not like derivatives and do not pose systemic risk.

Geithner is widely seen as sympathetic to the banks' point of view. In testimony before the Senate Agriculture Committee in 2009, he said, "The FX markets are different. They are not really derivative in a sense and they don't present the same sort of risk and there is an elaborate framework in place already to limit settlement risk. These markets actually work quite well." But some reports speculate he may take a middle road, subjecting some swaps to oversight and exempting others.

The Treasury Department and HSBC did not return requests for comment by the time of this posting.

The recently released Treasury meeting logs for the month of February report 37 meetings relating to implementation of the Dodd-Frank law held by officials with representatives from outside groups. The agency has been posting the meeting logs at the end of the month for the preceeding month, so the most recent information is for February. We have reported on these logs as they are made public, and have combined the information in one spreadsheet, posted below, for easy viewing.

Edited to add: HSBC responded with a comment after this piece was posted: "We confirm that the meeting took place. We have ongoing discussions with officials but do not disclose the contents of such meetings."

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