Despite this excellent record of performance during a period of unprecedented stress, there still is room for improvement. First, future stresses could be more severe or might come in different forms. This could expose vulnerabilities in FMIs that have, up to now, not been visible. Also, extraordinary interventions in the crisis to backstop market function or rescue key financial intermediaries may have prevented the stress level from reaching the point where FMIs couldn’t perform their functions. Because there can be no assurance that such interventions will necessarily occur in the future, it is important that the stability of the FMI architecture not depend on timely extraordinary interventions. Second, under the new regime of central clearing for standardized OTC derivatives trades, the role of FMIs will become even more important in the future. Moreover, the new regime will lead to the development of new types of FMIs. CCPs for OTC derivatives will become widespread – and trade repositories will be established. Principles are needed to underpin these new institutional arrangements. Third, for FMIs to be resilient they would undoubtedly need to have some ability to access central bank services, including the lender of last resort function. But, if FMIs had access to such services, this would create moral hazard. The best way to address this conundrum is to hold the FMIs to tougher global standards.
Thus, for the system to be safer it is not sufficient to ensure that trades are standardized and that they are mandated to be cleared through CCPs, but also it is necessary that CCPs be “bullet proof.” They have to have the ability to perform and meet their obligations regardless of the degree of stress in the financial system and even if one or more of their participants were to fail in a disorderly manner. Hence, there is a compelling need for tougher principles that are broadly enforced. In addition, to ensure that this all works as well in practice as in theory, the Financial Stability Board, CPSS and IOSCO, and other regulatory authorities have emphasized the importance of four safeguards to ensure that mandatory, standardized clearing through CCPs will make the financial system more robust and resilient. The first safeguard is that the oversight of global CCPs needs to be cooperative – involving the securities regulators and central banks in the country in which the CCP operates (the home country) and the countries for which the CCP may be systemically important. Global CCPs are likely to be established – some are already up and running – that will clear different types of OTC derivatives such as interest rate swaps, credit default swaps, or commodity-based swaps that are traded around the world, both solely within one country or on a cross-border basis. Many regulators have important stakes in ensuring that a global CCP can meet its obligations.