The pillars of the global financial system are fundamentally unstable and could lead to a frightening chain-reaction in the next crisis, the world’s top watchdog has warned.
Giant “central counterparties” (CCPs) that clear much of the $540 trillion (£428 trillion) nexus of derivatives are themselves vulnerable to failure in times of extreme stress.
This is a worry looming ever larger as rising US interest rates expose the weak links in global debt markets.
The Bank for International Settlements (BIS) said in its quarterly report that the CCPs could cause “a destabilising feedback loop, amplifying stress.”
The implicit message is that well-meaning regulators may have made the financial architecture…