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September 23, 2013

FT – A report that cast doubts on the effectiveness of the Financial Markets Regulation

On the fifth anniversary of the collapse of Lehman Brothers, the Financial Times has published a report titled “Lehman’s Legacy” with the purpose of uncovering the impact on the financial markets of the various regulations implemented in the aftermath. Follow the direct link to the report: FT.com – Lehman’s Legacy (subscribers only). In particular, you should have a look at the article “Unfinished business in battle to fix the banks”, which implies that even though the regulators are trying to address problems such as low capital, weak funding structures, poor lending, poor trading investments, etc., the crucial issue, which is the system’s asset concentration in government and mortgage debt, hasn’t been faced up to. I wonder why. Terry Duffy, the executive chairman on CME Group, in “In his own words: Terry Duffy” discusses his views on clearing and Dodd-Frank. Does he appreciate Washington’s move to turn clearing into a mandatory process? No. Or at least, so he says. Any chance Clearing Houses will be the cause of the next financial disaster? No. Or at least, so he says. Too rigorous risk protocols (or at least, as he admits soon after, more rigorous than those of the banks). What about the decreasing quality of collateral accepted by clearing houses? Nonsense! The key is diversification. What do you think of the regulators in Washington? They try to eliminate 100% of the risk in the financial market. Mission impossible. That is quite true indeed. SD  

 


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