The typical level of client initial margin for OTC derivatives held by a large clearing member is over $  34  If clients representing  half of the initial margin port, and the others are closed out and lose their entire initial margin, the loss to these clients collectively would exceed $ (Clearly we cannot know what the actual losses would be in any particular event, but we do know that the sums at risk are substantial). The financial stability benefits would have to be set against any possible costs. The risk-weighted capital ratio rather than the leverage ratio is the dominant constraint for many large clearing members. This means that for these firms a change in the leverage ratio to allow initial margin to offset exposure is unlikely to change their resilience at all. But even were a large clearing member to be constrained by the leverage ratio, the effect on capital – and hence on resilience – is small. For instance, for a typical large clearing member, the effect is to change the probability of default estimated by a model that has been used previously by Bank staff to inform discussions about the calibration of capital requirements  35  by between 0 and 8 bps. This takes the probability of default of  this typical clearing member from 1.2% to 1.28% at worst. This illustrates how different pieces of analysis and evidence could be brought together to assess objectively the case for making a dynamic adjustment to an aspect of banking regulation.
However, one interesting question is what effect the change in population structure will have on savings and on the securities markets in a few years time, when those of us born in the 1940s retire. We are a fairly large group from the baby boom years. The life cycle hypothesis assumes that we will sell large parts of our assets, which will lead to negative net savings. However, some studies indicate that pensioners may not consume their capital to the extent assumed. And of course, some people actually have something left to pass on to their descendants. One decisive factor for the future development of savings is how the pension system will function in practice and what responsibility the individual will have in the future for other parts of the traditional welfare system. Technological developments Another important driving force behind the securities markets is technological developments. These occur in several ways. Look, for example, at the current procedure for a securities transaction, from start to finish. The process from placing the order to buy or sell until the transaction is finally settled has become increasingly automated. I don’t just mean the actual trading, which has become increasingly electronic, but also the processes following on from this, namely clearing and settlement. Straight through processing, usually referred to as STP, is becoming more common. This involves the entire chain from placing the order to clearing and settlement being implemented without manual intervention. The increased automation has led to transaction costs falling.