The Latest Post-Brexit Finance Fight Puts Everyone at Risk
When it comes to the crucial and highly sought-after clearing industry, compromise between the U.K. and EU is best.
If it ain’t broke, why fix it?
Photographer: Wiktor Szymanowicz/Barcroft Media/Barcroft Media
The post-Brexit war over financial services — and to what degree Europe can lure business away from the City of London — is far from over. The latest battle is derivatives clearing. But compromise is possible and would serve everyone best.
Set up in the aftermath of the global financial crisis, central counterparty clearing houses (CCPs) act as middlemen between institutions trading derivatives, minimizing counterparty risk. So if one party were to default, CCPs should still have access to collateral and liquidity to prevent a domino effect of subsequent blow-ups, as happened when Lehman Brothers went bankrupt in 2008. Though not big money spinners per se, CCPs are part of an industry that surrounds more than $1 quadrillion worth of derivatives.