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August 7, 2013

Have you Got All These Components in Your Systemic Risk Plan? DTCC Defines The Threats

A great paper from DTCC which paints a scary picture of the many ways our capital markets could be destabilised, including:

  1. Cyber Attack
  2. New Regulations
  3. High Frequency Trading
  4. Counterparty Risk
  5. Collateral Flow
  6. Market Quality / Stability / Reputational Risk
  7. CCPs as Single Points of Failure
  8. Business Continuity

Apart from that smorgasbord of danger, the piece I spotted were the quotes about new regulations as a source of systemic risk themselves:

  • The U.S. Government Accountability Office, in response to the Dodd-Frank Act: “The implementation of many of these reforms remains ongoing and the effectiveness of some remains an open question.”
  • Ms. Sheila Bair (former chair of the Federal Deposit Insurance Corporation): “We’ve accomplished a lot since the crisis…but many of the old problems remain, like Basel letting banks model their own risk. And it’s all got- ten much more complicated.”
  • Mr. Wayne Abernathy, Executive Vice President of the American Bankers Association: “The costs and efforts of complying with all these rules are no longer worth the safety and soundness dividend they provide.”
  • Commissioner Scott O’Malia, the U.S. Commodity Futures Trading Commission: “The Commission now re- ceives data on thousands of swaps each day. So far, none of our computer programs load this data without crashing. In a rush to promulgate the reporting rules, the Commission failed to specify the data format reporting parties must use when sending their swaps to swap data repositories.”
  • Mr. Thomas Donohue, President and Chief Executive Officer of the U.S. Chamber of Commerce: “At the top of the list for our capital markets is the ongoing confusion over the mass of regulatory rulemaking spawned by Dodd-Frank. The law was written in anger and on the faulty premise that regulators could and should eliminate all risks from the system.”11

The full paper is here

DTCC WHITE PAPER IDENTIFIES GREATER SYSTEMIC RISK COMPLEXITIES TO FINANCIAL MARKETS.

 


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