The Bigger's Opera

Too big to fail, too big to fall, too big to jail…I never sang this song. Because the market dynamics is more complex and in debt webs (who owns whom what) with a DebtRank the bank size is not as important as we might have thought. It's more the effect of transition: how wide would the spread of economies distress be, if a bank failed.


However, the regulatory bodies decided to force central counter party and clearing regimes…and who else as "the big players" will be able to be a central clearing house for OTC derivatives?

Margin compression 

This may have unintended consequences: on the higher-level view it's reducing counter party exposure but may be resulting in an increase in liquidity risk. Such kind of centralization may drive a marginal cost regime with margin compression…for several market participants.

Financial advisors are suggesting that banks shall find new services to compensate…

New Services

RBS describes such an offer here: cutting the clutter of corporate bankingthey offer integrated systems for corporate treasuries, after they have explained why those need it here: why new regulations will hit companies hard…and (my compilation) internationally acting banks will be able to provide this service in a regime of Babylonian (rules syntax and semantics). 

A big one? Clearing houses are often operated by major banks…

So, will "the big" act as central counter parties and offer services to other market participants that promise to master the complexity of the new regulatory regime that they are an important part of?

David in Bondage?

I'm not looking into this through the lens of finance (micro- vs macro-prudential…wrong-way risks..)  but the lens of innovation. In any market, if a few market participants, the Goliaths, figure out how to become the champion-in-all-areneas the effective marketing hypothesis is (definitely) broken.

Who will arm the working hard to serve the corporate treasuries…individually, whilst driving long term innovations?