Will Central Counterparties become the New Rating Agencies?
Central Counterparties (CCPs) are widely promoted as a requirement for safe banking with little dissent except on technical grounds (such as proliferation of CCPs). Whilst CCPs can have major operational positives, we argue that CCPs have many of the business characteristics of Rating Agencies, and face similar business pressures. Thus we see a risk that prices from CCPs may develop the characteristics attributed to ratings from Rating Agency pre-crisis. Business over-reliance on ratings of questionable accuracy is seen as a cause of the financial crisis. We see the potential for same situation to be repeated with prices from CCPs. Thus the regulatory emphasis on CCPs, rather than on collateralization, may create the preconditions for an avoidable repeat of the financial crisis.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1211.6349. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.