Streetwise Professor Argues that Post-Crisis Regulations Perpetuate Liquidity and Clearing Risks

In a blog post titled "The Red Queen's Race: Financial Regulation Edition," University of Houston finance professor Craig Pirrong discussed the "regulation-related driven spurts in securities lending that are collateral transformation on steroids."

Professor Pirrong argued that:

Things like the [Liquidity Coverage Ratio] and clearing mandates were introduced to solve one set of problems (or perceived problems) inherent in the financial transformations that banks provide. But these regulations have led to the proliferation of other kinds of transformations that are problematic in their own ways. These new transformations create new, potentially fragile, interconnections. They create new counterparty and liquidity risks even as they mitigate some old ones.