In the US and Europe, regulators have been quick to seize on central counterparty (CCP) clearing as a solution to some of the frightening risks they perceived in the over-the-counter derivatives markets. But as we draw closer to the moment when crucial decisions are made, Kevin White, lead financial services partner at Ineum Consulting, argues that the authorities should be careful what they wish for.
Counterparty exposure, especially in the credit default swap market, as reflected in the failure of Lehman Brothers and Bear Stearns, has been deemed a potential cause of systemic risk.
Therefore, US treasury secretary Timothy Geithner has proposed a plan to require...