What Could Possibly Go Wrong?
Analyzing Basel Committee on Banking Regulation's treatment of exposures to central counterparties, Professor Craig Pirrong observes that while CCPs went through the recent crisis relatively unscathed, relying on that historical fact to justify the expansion of CCPs, and implementing incentives to encourage that growth means that "the new CCPs will not be your grandfather's CCPs. They will be different-and far riskier. The incentive system will encourage the shifting of more risk, and more exotic and difficult to measure and manage risks onto CCPs."
Contrary to the view of the CFTC chairman, "Incentivizing the offloading of risk to CCPs increases the likelihood that they will be the source of the next crisis."
Publication
Streetwise Professor
Date
December 22, 2010
Cross Reference (links require a Cabinet subscription)
Dodd-Frank Act, Title VII, Sec. 723.