Pat Dollard

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Financial Times:

The US central bank is looking into Goldman Sachs’s role in arranging contentious derivatives trades for Greece, which helped the country to massage its public finances, Ben Bernanke, chairman of the Federal Reserve, revealed on Thursday.

“We are looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Mr Bernanke said, apparently referring to Greek currency transactions structured by Goldman.

Testifying before Congress, Mr Bernanke also responded to concerns that instability in markets for Greek debt and other securities has been heightened by trading in other derivatives, known as credit default swaps, which compensate investors in case of default.

Mr Bernanke said default swaps are “properly used as hedging instruments” and that “using these instruments in a way that intentionally destabilises a company or a country is counterproductive”.

The Securities and Exchange Commission is “examining potential abuses and destabilising effects related to the use of credit default swaps and other opaque financial products and practices”, said a spokesman.

Separately, Phil Angelides, chairman of the US Financial Crisis Inquiry Commission, told the Financial Times he was concerned about the practice of creating securities and “fully betting against them” – and about Goldman’s role in particular. Goldman declined to comment.

The US comments came as an official in German chancellor Angela Merkel’s ruling Christian Democratic Union party said the G20 nations were discussing whether a ban on the speculative use of CDS was workable.

Renewed uncertainty about Greece prompted a further sell-off of the country’s bonds and the euro amid rising fears that Athens faced a credit ratings downgrade that would complicate its goal of refinancing its debt in capital markets. The euro fell to a near nine-month low against the US ­dollar.

Goldman has come under fire from European regulators for structuring transactions that helped Greece trim its debt figures after it joined the European monetary union in 2001.

As Greece’s public debt grew to exceed its annual gross domestic product, the bank helped it organise a currency trade to delay its repayments while meeting European deficit limits.

Goldman has said that the currency swaps played a minimal role in Greece’s current financial crisis and that the transactions were in line with European regulations.