5 Big Shadow Banking Threats to Everyone and Everything
2. CME Group (CME) (Clearinghouses)
Clearinghouses are often run by exchange operators like CME Group and LCH.Clearnet Group. Their goal is to ensure that all parties to a trade have sufficient funds to pay for it, since big institutions trade using borrowed money.
The importance of clearinghouses has increased since the 2008 crisis as regulators are requiring an increasing portion of the $700 trillion dollar swaps market to be cleared through a centralized entity such as an exchange. In theory, exchanges have clearing members such as large banks standing behind them that would contribute capital to backstop the exchange if it required new infusions of capital. However Boston College professor Kane argues in his essay that "the more important swaps trading on a particular exchange might become, the better its clearing members will see that adopting a corporate form will limit their individual and joint liability in crises and would help them if the exchange itself should ever become insolvent to whip up the financial, political and administrative fear necessary to trigger the bailout reflex."In a speech last year, Bank of England Deputy Governor Paul Tucker described a "big gap" in the legal framework for winding down clearinghouses. "What happens if they go bust? I can tell you the simple answer: mayhem," Tucker said.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV