At the 2011 Financial Markets Conference, Stone Mountain, Georgia
April 4, 2011
I am pleased to speak once again at the Federal Reserve Bank of Atlanta’s Financial Markets Conference. This year’s conference covers an interesting mix of topics bearing on the vital ongoing global debate on how best to prevent and respond to financial crises.
Tonight I would like to discuss post-crisis reform as it relates to a prominent part of our financial market infrastructure–namely, clearinghouses for payments, securities, and derivatives transactions. This audience, I know, recognizes the importance of what is often called the “plumbing” of the financial system–a set of institutions that very safely and efficiently handles, under most circumstances, enormous volumes of financial transactions each day. Because clearinghouses and other parts of the financial infrastructure fared relatively well during the crisis–despite moments of significant stress–the public debate on financial reform has understandably focused on the risks posed by so-called too-big-to-fail financial firms, whose dramatic failures or near failures put our financial system and economy in dire jeopardy. Nevertheless, the smooth operation and financial soundness of clearinghouses and related institutions are essential for financial stability, and we must not take them for granted.
Importantly, title 8 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) contains provisions aimed at improving the transparency, resilience, and financial strength of clearinghouses, which the act calls financial market utilities. Recognizing the systemic importance of clearinghouses, title 8 also challenges U.S. regulatory authorities to improve and better coordinate their oversight of these institutions. Moreover, to put into effect the macroprudential or systemic approach to regulation and oversight encouraged by the Dodd-Frank Act, regulators will have to work to gain greater insight into the complex linkages among clearinghouses as well as those between clearinghouses and the financial firms that rely on and support them. (continued)
Source: www.federalreserve.gov
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