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Worried about how many more shocks the financial system can take, the Federal Reserve Bank of New York is meeting with banks and investors Tuesday to give a push to the process of creating a clearinghouse for the $54.6 trillion credit default swaps market.
The push to create a clearinghouse began earlier this year and has
intensified as regulators worry about the consequences of a major
market maker being unable to fulfill its counterparty obligations.
Earlier this year international financier George Soros named default swaps as one of a number of land mines that markets have to navigate around, saying: "This is a totally unregulated market hanging like a Damocles sword over the financial system. You don't know whether your counterparty is good for its payment or not." A spokesperson for the New York Fed told Bloomberg that it will hold a meeting with a "small number of banks and buy-side firms" to discuss progress being made on creating a central counterparty. There is an informal deadline to have the clearinghouse up and running by year's end. CDSs are contracts that act as insurance policies to protect against debt default. Holders of debt securities will buy protection from dealers such as American International Group Inc., Deutsche Bank AG, Goldman, Sachs & Co. and J.P. Morgan Chase & Co., and, if default occurs, the CDS contract seller agrees to pay the buyer the face value of the debt security in question. - George White See Bloomberg story See Dealscape post on CDS regulation See Dealscape post on Soros comments Categories Deal Video
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