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Cohn: Overuse of Clearinghouses Could Create New Systemic Problem

15 Oct 2017 4:47 pm
By Harriet Torry 

WASHINGTON -- National Economic Council director Gary Cohn hit out at clearinghouses Sunday, saying the growing amount of illiquid assets parked in them raises concerns about a "new systemic problem in the system."

"I don't think we really understand the magnitude of continuously putting things in clearinghouses without the proper guardrails in the clearinghouse," said Mr. Cohn, a former Goldman Sachs executive, adding the key to clearinghouses is real-time liquidation.

A clearinghouse is a place where transactions in things like foreign exchange and interest-rate derivatives can be safely recorded, monitored and settled.

"I think we have expanded the limits of clearing probably farther beyond their useful existence," Mr. Cohn said Sunday at a Group of 30 banking seminar in Washington.

"I don't think we have guidelines about how to resolve a clearinghouse in an orderly fashion," he said, adding the role of clearinghouses "agitates me."

Clearing has boomed since the financial crisis because regulators demanded it for more of the global trade in interest-rate swaps, currency swaps and interbank funding to help them keep a closer eye on connections between banks.

Mr. Cohn said that consistent, strong economic growth is "the best insulator against any financial crisis," with the right balance between regulation and growth.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

October 15, 2017 12:47 ET (16:47 GMT)

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