These are all Over-the-Counter (OTC) markets. As such, they do not typically benefit from clearing through a Central Counterparty (CCP). CCPs effectively eliminate counterparty risk between trading participants. This crisis has been, first and foremost, a crisis of counterparty risk. So it is perhaps unsurprising that some OTC markets without a CCP have been hardest hit. Against this backdrop, the US authorities have recently proposed the extension of central clearing to all standardised OTC derivative instruments. 4 This is a bold measure and one which deserves international support. In time, it might usefully be extended beyond OTC derivatives to some cash OTC instruments, such as corporate bonds. The benefits of this shift are essentially threefold. First, central clearing encourages standardisation and simplification of the contractual terms of financial instruments. Instrument complexity has been a key fault-line exposed during the crisis, especially among bespoke structured credit products. Ahead of crisis, standardisation was seen as a pre-requisite for central clearing. CCPs should be better seen as a catalyst for such standardisation. In future, infrastructure design might usefully shape market convention, rather than vice-versa. Second, because a CCP represents a potential single point of failure, it needs to be bulletproof. Standards of resilience should be comparable with other public utilities, such as water, gas and electricity. That has implications both for CCP risk management standards and for governance arrangements. Both need importantly to weigh the public good of systemic risk containment.
The world’s financial markets have been plunged into turmoil which some say is unprecedented, or at least comparable to the levels experienced in the most severe financial crises of the last century. Notwithstanding this, our financial system has demonstrated a level of stability which to an extent has been derived from the strong capital positions that have characterised the Zambian banking industry in the past few years. However, this turbulence has already resulted in a reduction in projected global economic growth and a decline in demand for Africa’s exports. Notwithstanding this, we remain confident that the banking sector will continue to show resilience and expansion through branch networks, thereby acting as a channel through which services will be extended to the financially excluded. Ladies and Gentlemen, a recent survey established that fewer than 15% of the Zambian adult population have access to the services provided by commercial banks. The key reasons for this low level of access were cited as the distance that needs to be overcome in order to access the services and the cost of these services. It is therefore a welcome development that commercial banks have responded to these challenges by reaching out through new branches. However, banks need to be mindful of the fact that the many of our people who need these services most of all are not able to bear the heavy charges that are sometimes levied, and the goal of inclusion will stand to be compromised if this matter is not addressed.