Assessing the macroeconomic impact of OTC derivatives regulatory reforms

Lunch remarks by Mr Stephen G Cecchetti, Economic Adviser and Head of Monetary and Economic Department of the BIS, prepared for the Emerging Markets Dialogue on OTC derivatives Johannesburg, South Africa, 12-13 September 2013.

Let me start by thanking the South African Reserve Bank, the National Treasury and the Financial Services Board for inviting me. It is a privilege to speak this afternoon at the Emerging Markets Dialogue on OTC derivatives. And, it is always a pleasure to return to South Africa.

Today I would like to discuss the findings of the Macroeconomic Assessment Group on Derivatives (MAGD). The Group, which I chaired, brought together nearly 30 member institutions of the Financial Stability Board (FSB), and worked in close collaboration with the IMF. We also took guidance from academics and other official sector working groups, and we consulted with private sector OTC derivatives users and infrastructure providers. The Group developed and employed models that provide an estimate of the benefits and costs of the proposed reforms. Its final report was published on 26 August 2013 and is available on the BIS website.

Before I turn to the Group's findings, let me offer a few examples to illustrate why OTC derivatives should be centrally cleared and collateralised. These are the stories of Amaranth Advisors, Long-Term Capital Management (LTCM) and American International Group (AIG).