The Bank for International Settlements has released its Quarterly Review, September 2009 of International banking and financial market developments, with articles:
- Overview: cautious optimism on gradual recovery
- Highlights of international banking and financial market activity
- The future of securitisation: how to align incentives?
- Central counterparties for over-the-counter derivatives
- The cost of equity for global banks: a CAPM perspective from 1990 to 2009
- The systemic importance of financial institutions
The essay on central counterparties for OTC derivatives is rather disappointing. It takes as an article of faith that regulatory oversight will improve the market’s stability; I am not so easily convinced. Politicians will always be more procyclical than the most manic-depressive market participant and while increased controls may reduce the frequency of financial crashes, I will assert that they will increase their severity. Unfortunately, the regulators now have a talking point and you can bet they’ll be using it to assure themselves of continued employment and prestiege … at least until the next paradigm shift.
It is of particular interest that the big push for a central clearinghouse is coming simultaneously with the pretense of horror at the existence of systemically important banks (pretense? Yes, pretense.) The essay does not address this contradiction.