Industry still lagging on infrastructure
The lack of proper financial infrastructure is holding the industry back, according to multiple conversations held at Sibos 2011 in Toronto. October 25, 2011 | Peter HoflichGovernment officials and regulators have concluded that more robust financial infrastructure could have mitigated the systemic risk that built up in the financial crisis. But three years have passed since the collapse of Lehman Brothers, with very little decision on the matter of how to go about central clearing for OTC derivatives, as well as other important pieces of related infrastructure, making this one of the key topics of discussion at Sibos 2011 in Toronto. In the opening plenary, Timothy Lane, deputy governor of the Bank of Canada discussed the creation of robust financial market infrastructure for the OTC derivatives market, as laid out by G-20 financial reform objectives, to protect the system from financial shocks, rather than amplify them as happened in 2008. “The crisis did not start or end with the shortcomings in bilateral clearing and settlement, but they were channels through which problems in an obscure part of the US housing market cascaded into a global crisis,” said Lane, referring to problems caused by the leverage taken on by Bear Stearns and the role of Lehman Brothers as a counterparty for OTC derivatives transactions. “In both cases, a basic problem was counterparty risk associated with financial contracts that are cleared and settled bilaterally.” This led the G-20 to call for standardized OTC derivatives to be centrally cleared and traded on exchanges or electronic trading platforms, with all trades—whether centrally cleared or not—to be reported to trade repositories. However, if central counterparties (CCPs) are to be the watchmen, someone must still watch the watchmen so that the risk-mitigating infrastructure doesn’t actually heighten it. “Since CCPs—which interpose themselves between buyer and seller in financial markets— concentrate risk by becoming the counterparty to all transactions, they must have stringent risk-management standards,” said Lane. “The use of... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Payments, Transaction BankingPayments,Transaction Banking, Payments,Transaction Banking, Keywords:Sibos 2011, SWIFT, BNY Mellon, Tim Kearney, INTTRA, HSBC, CCP, Timothy Lane, Bank Of Canada, Lawrence Sweet, Federal Reserve Bank Of New York Sibos 2011, SWIFT, BNY Mellon, Tim Kearney, INTTRA, HSBC, CCP, Timothy Lane, Bank of Canada, Lawrence Sweet, Federal Reserve Bank of New York
|