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Updated 21:34 15/11/19

Clearing houses are the new 'too big to fail' institutions

By Samuel Gee, News Editor

06 Oct 2016

With Deutsche Bank’s increasingly precarious position casting a dark shadow over the European financial landscape, the reality of the German bank’s enormous derivatives exposure is becoming increasingly worrying.

Concerns have been raised over the potential chaos the collapse of major clearing houses such as LCH and Eurex Clearing could cause should they come into trouble. Branded the new ‘too big to fail’ institutions, derivative clearing houses are the latest target in the European Commission’s efforts to increase the safety of global financial markets.

The EU have drafted a law, due to be published in November, aimed at ensuring the stability of clearing houses should another crisis unfold. The proposed law would mean that clearing house members such as banks would be expected to prop up the institutions. The law would also give authorities increased regulatory powers, including the freedom to annul derivatives contracts and trim margins, effectively the power to seize assets from customers.

The weakness of the banking industry is constantly being exposed and few improvements appear to have been made since the last crisis. Are these measures a sign that another is just around the corner? Once again, it seems as though the responsibility to save the failing financial industry has landed at the feet of the public.

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