Streetwise Professor

August 29, 2013

By Popular Demand: Clearing Mandates and Systemic Risk

A couple of people have expressed interest in my paper on clearing mandates and systemic risk.  So here it is.

In a nutshell: the arguments that clearing (and non-cleared derivatives) collateral mandates will reduce systemic risk are fundamentally flawed.  Ironically, this is because the analyses do not take a truly systemic approach.

My counterarguments will be familiar to those reading my posts on clearing over the past five years (!) but this piece lays them out in one place.  One stop shopping, as it were.  Or maybe one stop slashing.  (One of my lawyer clients remarked to his partner yesterday that I wrote “slashing” blog posts.  I said “Don’t leave out the burning!”)

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3 Comments »

  1. thank you. I have my machete and like slash and burn. If cleared and non-cleared contracts could be listed side by side, then a market could discover the explicit price for clearing, and counterparty risk.

    Comment by scott — August 30, 2013 @ 8:40 am

  2. Perfesser, you are dead right. @scott – couldn’t agree more. I used to call CMO’s (or at least the Bear deals) the unknowable owned by the unknowing. Such is the case for our regulators: the immeasurable measured by the innumerate.

    Comment by Sotos — August 30, 2013 @ 12:14 pm

  3. […] By Popular Demand: Clearing Mandates and Systemic Risk A couple of people have expressed interest in my paper on clearing mandates and systemic risk.  So here it is. In a nutshell: the arguments that clearing (and non-cleared derivatives) collateral mandates will reduce systemic risk are fundamentally flawed.  Ironically, this is because the analyses do not take a truly systemic approach. http://streetwiseprofessor.com/?p=7585# […]

    Pingback by The week that was (Dazzling Derivatives; issue of 2nd September 2013) | The OTC Space — September 2, 2013 @ 1:40 am

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