European Central Bank Executive Board member Benoit Coeure said the ECB will need better access to international data on over-the-counter derivatives when it starts to supervise euro-area lenders.
Access to derivatives data relating to a European bank’s overseas operations “is key to assessing the overall risk exposure of a given banking group,” Coeure said at an event in Paris today. “We need to remove barriers to access and provide a mechanism to aggregate data across trade repositories and jurisdictions in order to be able to have a comprehensive overview of the risks in OTC derivatives markets.”
Nations are trying to bolster and align rules for the $633 trillion market for swaps and other OTC derivatives. The instruments became a target for reinforced oversight after the 2008 collapse of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc., two of the largest traders in credit-default swaps. Global plans include boosting the use of clearinghouses, pushing activity onto regulated markets and requiring banks to put up more collateral.
Coeure said authorities must monitor the impact of regulatory changes and mandatory clearing requirements on risk management at the central clearinghouses. That’s because some market participants won’t be able to access central counterparties directly but will have to go “via a direct clearing member.”
“The systemic risk concentration in a small number of global financial institutions is further increased,” he said. “This aggravates the risk that these financial institutions may act as contagion channels for financial disturbances and may become or be perceived to be ‘too big to fail’.”
The EU Parliament is scheduled to vote tomorrow on the euro area’s Single Supervisory Mechanism. That will give the ECB bank-oversight duties in a bid to help quell the European debt crisis by separating the financial woes of governments and lenders.