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Analysis: “Its Crazy” Banks Don’t Have Insight Into Their Derivatives Risk 

April 13, 2015

Mark Melin, ValueWalk

As the derivatives that underlie the world economy face unknown interconnected risk in a Greek sovereign default, behind the scenes the problem is dissected and corresponding solutions are offered. But the real issue is: will those who control the underwriting of derivatives contracts allow any degree of transparency into what is documented to be a threat to economic security?

On one side of the argument is world economic security. On the other side is a legitimate concern for a degree of client confidentiality. But a proposal to create a logical template so regulators and the U.S. national security apparatus can track macro derivatives risk appears to not have any public opposition. Or at least, no one is willing to discuss the issue in public, appearing to operate in friendly forums where whispers often determine outcomes.

Why is a degree of transparency into derivatives risk that does not individually identify clients or their positions is so difficult to accomplish? As outlined at the end of this article, a template can be created, if the bank’s are willing to cooperate with regulators to provide what the U.S. Federal Reserve and U.S. Treasury have publicly requested? There logical national security concerns ignored behind the scenes, they have gone public, an unusual move that indicates potential political roadblocks that, for now, cannot be overcome.

Read more: ValueWalk

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