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Monday, April 04, 2011

Bernanke: Clearinghouses, Financial Stability, and Financial Reform

by Calculated Risk on 4/04/2011 07:15:00 PM

From Fed Chairman Ben Bernanke: Clearinghouses, Financial Stability, and Financial Reform

This is a historical review of clearinghouses (some of the financial system "plumbing"), and a discussion of the impact of Dodd-Frank. There is no discussion of current monetary policy.

"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."