A snapshot of derivatives-related measures
Bringing transparency and accountability to derivatives
The Banking Committee’s summary of the bill sets out the rationale for tightening derivatives regulation. It highlights how the OTC market “has exploded – from $91tr in 1998 to $592tr in 2008”, and how during the financial crisis, “concerns about the ability of companies to make good on these contracts and the lack of transparency about what risks existed caused credit markets to freeze”.
“Over-the-counter derivatives are supposed to be contracts that protect businesses from risks, but they became a way for traders to make enormous bets with no regulatory oversight or rules and therefore exacerbated risks,” the summary says. “Because the derivatives market was considered too big and too interconnected to fail, taxpayers had to foot the bill for Wall Street’s bad bets. Those bad bets linked thousands of traders, creating a web in which one default threatened...