Fast-expanding clearing houses on both sides of the Atlantic are posing a growing risk to the stability of the financial system, some of the world's top bankers have warned.
Concerns have mounted as clearing houses have shot to the top of banks’ lists of counterparties, following the shift of over-the-counter trading to centralised clearing houses.
Clearers – such as LCH.Clearnet and Deutsche Börse’s Eurex in Europe, and CME Group in the US – sit between two parties in a trade and guarantee the deal if one of those parties defaults. They have traditionally been seen as a staid part of market plumbing. But in the aftermath of the financial crisis, they have moved to the forefront of a global regulatory push to reform derivatives markets and reduce the risks posed by big banks.
But, as trading volumes through the clearing houses ramp up, banks increasingly fear this new counterparty risk. Top bankers, who have been lobbying regulators over the issue for some time, have also sought meetings with clearing house bosses in recent weeks to discuss their concerns.
Banks have voiced concerns to regulators in Europe and the US that central clearing houses are providing insufficient data on their own risks and demanding lower-quality collateral for swaps transactions. They argue the risks are too opaque, and getting riskier.
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