Committee on Capital Markets Regulation Proposes Fed-Regulated Clearinghouses To Reduce Systemic Risk

by  Hal Scott, for The Harvard Law School Forum at Harvard Law School, March 11, 2010.

The Committee on Capital Markets Regulation (CCMR), an independent, non-partisan research organization and a leading proponent of carefully considered financial regulatory reform, has proposed a comprehensive approach to reforming regulatory oversight of derivatives markets to reduce systemic risk in the financial system, through greater use of derivatives clearinghouses, to be overseen by the Federal Reserve.

In a 28-page letter to the Chairmen and Ranking Members of the Senate Banking Committee and House Financial Services Committee, the CCMR has provided a framework for legislating on many of the largest and thorniest financial reform issues on the Congressional agenda. 

Meaningful financial regulatory reform depends on reducing the risks posed by over-the-counter derivatives. We’ve all heard the charges that on the topic of derivatives, there is substantial disagreement among industry participants. Nonetheless, the atmosphere of this debate has changed dramatically since last spring. The CCMR includes a diverse array of financial market participants with diverse views on many financial and market related issues, but as our letter and release demonstrate, there is now agreement on many of the core problems and the needed solutions. Specifically, CCMR members agree that the most effective approach to reducing systemic risk centers on well-capitalized, closely monitored and effectively regulated clearinghouses comprised of market participants. Such clearinghouses will spread out the risk of counterparty defaults, thus avoiding chain reactions of financial institution failures…(continue reading)

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