Unintended Consequences of the Global Derivatives Market Reform
53 Pages Posted: 14 Jan 2020 Last revised: 24 Nov 2021
Date Written: January 13, 2020
The G-20’s global over-the-counter (OTC) derivatives market reform has caused a dramatic shift in the geography of the global derivatives market. Following the early implementation of the reform in the US and associated increase in the cost of trading derivatives, US banks shifted up to 60 percent of their OTC derivatives activity abroad, particularly towards less regulated jurisdictions. This implies an increase in global risk as risk is shifted to jurisdictions that are less prepared to monitor it and deal with the consequences. Further, we find that foreign subsidiaries in more tightly regulated jurisdictions have increased risk-taking overall.
Keywords: Bank regulation, Regulatory arbitrage, OTC Markets, Derivatives, Crossborder financial institutions, Financial risk.
JEL Classification: G15, G18, G21, G23, G28
Suggested Citation: Suggested Citation