What did he just say? November 25, 2013 at 9:06 pm

Quoth Tarullo:

To date, over-the-counter derivatives reform is the primary example of a post-crisis effort at market-wide regulation. Given that the 2007–2008 financial crisis was driven more by disruptions in the SFT markets than by disruptions in the over-the-counter derivative markets, comparable attention to SFT markets is surely needed.

So, um, you admit that “the 2007–2008 financial crisis was driven more by disruptions in the SFT markets than by disruptions in the over-the-counter derivative markets” but you regulated the latter first, not the former? Shurley shome mishtake?

2 Responses to “What did he just say?”

  1. It’s actually worse than that. The need to fund margins (both IM and VM) resulting from clearing mandates and the mandate to margin non-cleared derivatives will reasonably create additional demand for shadow banking services/products. So the regulation of what wasn’t the major source of disruptions in the system will likely increase stresses on the vulnerable part of the system which hasn’t seen the adoption or implementation of new regulations to address its acknowledged vulnerabilities.

  2. And of course, having pushed more of the derivatives market on to clearing houses, they realised that they had created single points of failure. So the clearing house regulations are all driven by the need to make sure a CH never fails … and so they encourage them to make aggressive and procyclical margin calls!

    OTC derivatives regulation was a perfect example of the “shock doctrine” – it was a bottom drawer idea that the regulatory community had hanging around, which benefited from being around at a time when people were looking for “something must be done”.