Blogs & Comment

Crises motivate change

A committee chaired by Wall Street honchos has recommended more rigorous procedures for minimizing systemic risk in derivatives markets — and unlike two previous rounds of recommendations, will likely see substantial adoption thanks to the atmosphere provided by the current financial crisis. So writes Robert Cyran on breakingviews.com.
I enjoyed Cyrans piece because it provided another example of how crises can motivate solutions to longstanding ailments and thus plant the seeds for a better future, as discussed in my rationale for taking the optimistic perspectiveon the current crisis. Here are some of the changes to which we can look forward as a result of the recommendations of the committee (Counterparty Risk Management Policy Group III):
– off-balance-sheet entities brought back onto balance sheet – more timely/comprehensive monitoring of counterparty risk – standard procedure for dealing with counterparty failure – complex derivatives should only be sold to sophisticated investors – better stress tests to measure potential for liquidity outflows