News Detail

Spatt Addresses Senate Subcommittee Hearing on “Derivatives Clearinghouses: Opportunities and Challenges”

Contact: Mark. D. Burd 412-268-3486

Release Date: May 27, 2011

The importance and intricacies of managing risks within derivatives clearinghouses was emphasized  in testimony provided by Chester S. Spatt, the Pamela R. and Kenneth B. Dunn Professor of Finance and Director of the Center for Financial Markets at Carnegie Mellon University’s Tepper School of Business.

His remarks were part of a hearing titled “Derivatives Clearinghouses: Opportunities and Challenges” held this week by the U.S. Senate Subcommittee on Securities, Insurance and Investment.  

The absence of clearinghouse failures during the most recent financial crisis is not a guarantee of stability in future situations – they are not too big to fail.  Professor Spatt explained how the clearinghouse structure, while presenting some attractive features, can be potentially subject to considerable moral hazard and how incentive structures and access can influence risk management systems. 

“It is unclear whether the extent of use of clearinghouses will ultimately lead to a reduction in systemic risk in the event of a future crisis,” Spatt told the Subcommittee.   

Additional information on the hearing is available on the U.S. Senate Committee on Banking, Housing & Human Affairs website. 

Professor Spatt’s testimony can be viewed on the aforementioned website beginning at the 79:45 mark on the proceedings webcast.

Read a transcript of professor Spatt’s testimony (.pdf).