Swaps clearinghouses are pushing back against the suggestion by a top Trump administration official that they have become too big and pose a market risk, saying that regulatory and internal “stress tests” prove there is no cause for alarm, the Wall Street Journal reported today. National Economic Council Director Gary Cohn said last week that he worried the entities could be a “new systemic risk” to financial stability, a viewpoint supported by policy makers across the government. A day after Cohn’s comments, a government regulator said its stress tests showed big U.S. clearinghouses could withstand a crisis-triggered liquidity crunch even if two of their major clearing member banks defaulted. Clearinghouses were beefed up after the 2008 financial crisis as the 2010 Dodd-Frank Act routed more transactions through them in an effort to protect financial stability. Still, Trump-appointed policy makers and clearinghouses agree the clearing mandate for swaps trading, widely regarded as one of the most successful parts of Dodd-Frank, could be tweaked to counter some consolidation and liquidity concerns. In particular, clearinghouses and their bank clearing members, as well as regulators at several agencies, say that a capital rule intended to provide a buffer against risky investments is actually preventing banks from doing more swap trading at clearinghouses, depressing liquidity.
