Douglas Landy, partner in Milbank, Tweed, Hadley & McCloy’s Leveraged Finance Group, was mentioned in a recent International Financing Review (IFR) article titled, “Swaps users eye voluntary clearing.”
The article focuses on liquidity concerns that need to be addressed as participants seek capital benefits, a topic explored at the February 2015 CCP Risk Review Conference co-hosted by Milbank, Linklaters and FIA Global in London. Mr. Landy notes that, “Everyone is discussing liquidity risk and the requirements for liquid assets to cover the default of the largest participants hasn't yet been fleshed out.”
IFR continues, “While US regulators have started to lean on CCPs to increase liquidity, Landy notes that those efforts may ultimately be ineffective in eliminating too-big-to-fail risk given banks have the dual role of being both the major participants of the clearing infrastructure, and also the firms providing liquidity.”
Mr. Landy explains, "The big question is whether that line ultimately swings back to the lender of last resort. If the line ultimately swings back to the Fed, then maybe it makes sense to just cut out the middle man, but that would be seen as politically sensitive and creating too much moral hazard."
