Banking regulators assured the International Swaps and Derivatives Association that they see no immediate need to regulate the industry - and said that they have advised Congress accordingly.
"We are not encouraging any broad-based legislation at this time," said Darcy E. Bradbury, deputy assistant secretary of the Treasury said at an annual ISDA conference in New York this week.
"We have no intention of telling corporate America that they can't make or lose money any way they want," she said.
Speaking directly to the bankers in the audience, Ms. Bradbury added, "Any regulatory approach that we take should balance the health of our markets with the innovation you are so good at."
Ms. Bradbury and other speakers said the fact that legislators are seeking information about derivatives from regulators is a good sign that the legislators won't act rashly.
In the wake of highly publicized losses by firms whose derivatives contracts backfired when rates rose unexpectedly earlier this year, however, the officials did not rule out the possibility of future regulation.
"We are not saying never. We are seriously studying the issues," Ms. Bradbury said.
Ernest T. Patrikis, executive vice president of the Federal Reserve Bank of New York, said much of the talk about derivatives legislation by members of Congress is borne out of irrational fear.
"They see the derivatives market as the next thrift crisis," Mr. Patrikis said. "The attitude in Washington is, this won't happen on my watch. What we are seeing is [proposed] legislation that micromanages regulations. That stifles innovation. And that's not the way ifs supposed to work."
He added that if the government "legislates, regulates, and codifies" existing safeguards, the growth of the derivatives market and the introduction of new products will be seriously curtailed.
Among the current proposals are a House Banking Committee bill that calls on agencies to set uniform disclosure and suitability standards for trading, and a Senate Banking Committee bill that would force banks to set up separate subsidiaries for proprietary trading.
The House bill, Mr. Patrikis said, would provide regulators with a lot of flexibility in their supervision of the derivatives market.
But, he added, "I hope we don't go to excessive regulation of the wholesale markets."
The "narrow concept of banking" in the bill proposed by the Senate Banking Committee "is not the right way to go," he said.
In the Ballpark
Ms. Bradbury concurred. "We do not perceive the risks of proprietary trading as greater than any other risks," she said. "We don't think a separately capitalized organization is needed for proprietary trading."
Ms. Bradbury said it may not be appropriate to have a uniform capital policy for all banks, because different institutions manage their risks in different ways.