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Policy Perspectives on OTC Derivatives Market Infrastructure

Author

Listed:
  • Duffie, Darrell

    (Stanford University)

  • Li, Ada

    (Federal Reserve Bank of New York)

  • Lubke, Theo

    (Federal Reserve Bank of New York)

Abstract
In the wake of the recent financial crisis, over-the-counter (OTC) derivatives have been blamed for increasing systemic risk. Although OTC derivatives were not a central cause of the crisis, the complexity and limited transparency of the market reinforced the potential for excessive risk-taking, as regulators did not have a clear view into how OTC derivatives were being used. We discuss how the New York Fed and other regulators could improve weaknesses in the OTC derivatives market through stronger oversight and better regulatory incentives for infrastructure improvements to reduce counterparty credit risk and bolster market liquidity, efficiency, and transparency. Used responsibly with these reforms, over-the-counter derivatives can provide important risk management and liquidity benefits to the financial system.

Suggested Citation

  • Duffie, Darrell & Li, Ada & Lubke, Theo, 2010. "Policy Perspectives on OTC Derivatives Market Infrastructure," Research Papers 2046, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:2046
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    File URL: http://gsbapps.stanford.edu/researchpapers/library/RP2046.pdf
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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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