Unintended Consequences of the Global Derivatives Market Reform

53 Pages Posted: 14 Jan 2020 Last revised: 24 Nov 2021

See all articles by Pauline Gandré

Pauline Gandré

Ecole Normale Supérieure (ENS) de Lyon; University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Mike Mariathasan

KU Leuven- Faculty of Economics & Business

Ouarda Merrouche

University of Lausanne

Steven Ongena

University of Zurich - Department of Banking and Finance; NTNU Business School; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: January 13, 2020

Abstract

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

Gandré, Pauline and Mariathasan, Mike and Merrouche, Ouarda and Ongena, Steven R. G. and Ongena, Steven R. G., Unintended Consequences of the Global Derivatives Market Reform (January 13, 2020). Swiss Finance Institute Research Paper No. 20-02, Available at SSRN: https://ssrn.com/abstract=3518411 or http://dx.doi.org/10.2139/ssrn.3518411

Pauline Gandré

Ecole Normale Supérieure (ENS) de Lyon ( email )

15, parvis Rene Descartes BP 7000
Lyon Cedex 07, 69342
France

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Mike Mariathasan

KU Leuven- Faculty of Economics & Business ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Ouarda Merrouche (Contact Author)

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

NTNU Business School ( email )

Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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