Member

In a sense, that leads on to the next SI, which is to some degree about central counterparties: the OTC derivatives regulations. In the 2007-08 crash, liquidity seized up in the global banking system because nobody knew who was at risk from whom since the majority of derivatives trades had been negotiated directly, bank to bank, rather than passed through a central counterparty. The Basel rules were put in place to incentivise banks to clear trade through a regulated CCP rather than dealing directly with each other. That system has been very successful, although many of us quake at the thought of the risk that is accumulated in the CCPs, which they manage through margin calls.