Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp. (FDIC), is fighting congressional efforts that have made progress in freeing large banks from having to hold collateral against derivatives used internally.

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

“Without margin exchanged for these trades, affiliates often enter into uncleared swaps transactions with the banks,” Hoenig wrote. “These affiliates can often operate with less capital and liquidity reserves than the market would otherwise require, as market participants treat these affiliates as if they were an extension of the bank.”