C. Liu,
One problem is that private derivatives are difficult to standardize since they are often very customized. Second, derivatives *trading* may not be regulated but the underlying loan risk is regulated. A bank must put its derivatives commitments on its books, at least in this country.
The days of banks that simply make loans is over and for good reason. The trend is clearly to securitize and trade all types of credit. I think that is both reasonable and dialectically inevitable. Credit money is dominant now and the form is expanding. If credit money is to work, it has to represent the broadest possible range of credit relationships, in the most currencies. After all, surplus value is theoretically the same despite the currency it might be denominated in. How are we to reconcile credit money to a universal standard of value if not through trade of that money across currency and credit regimes?
On the one hand you seem to complain that East Asian banks are not being allowed to accept more risk than Westerners are comfortable with because they are forced to reconcile their practices with the international monetary system. On the other you seem to complain that it is the Western banks who are creating more risk. Is risk desirable or no? Swaps represent four kinds of risk as I see it. First they represent underlying default risk and you are going to have to make up your mind as to whether that is a good or a bad thing. Second, they represent interest rate risk which Greenspan and his ilk seem to have pretty well under control. Third they represent currency risk. Yet, well and transparently backed currencies seem to come back to stable exchange rates fairly quickly. Fourth, they represent the peculiar risks inherent in unwinding complicated and non-standard contracts. It may be that large, Western institutions can set terms in these arrangements, but the buyer has to beware in the private swaps and derivatives market, which market is really only for hedging in the first place.
peace