rashbre central: no seal, no deal?

Thursday 11 October 2018

no seal, no deal?


A weird thing about running this blog for so many years is when some topics either repeat or develop.

I can remember blogging about the large financial black hole that was being generated after the last financial crisis and the way that derivatives were plugging gaps.

The sums involved were into trillions, and used to hedge financial risks, interest rates and similar complex financial instruments across the whole of the EU.

Risk insurers have been moving the business from London-based companies into new mainland European subsidiaries. But that isn't enough because most of the investment-bank backing for the hedges is still provided and cleared through London.

I originally mentioned that the sum held in outstanding contracts was into trillions, and nowadays the latest Bank of England estimate is around £40 trillion. That's more than double the market capitalisation of the entire New York Stock Exchange.

Nobody apart from Mark Carney appears to be talking about this particular cliff edge, where central counter party clearing could cease to function next March. The question becomes about whether the institutions involved have enough safety margin to withstand the jolts through a period of uncertainty.

I know it sounds esoteric, but rest assured that any bad impact will affect more than just the traders.

Yet not a peep on this one from any of the Brexiteers.

Image: representation of a sun-eating supermassive quasar

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