PAST EVENTS

 

On 8 March, CWN partnered with law firm Mayer Brown to host a panel discussion on the financial crisis, the role of derivatives and prospects for future reform. With over 100 attendees, the auditorium of Mayer Brown's smart new office in Bishopsgate was virtually full - perhaps a testament to the level of interest in this rapidly changing field.

 

The panel, chaired by Global Co-Head of Derivatives at Mayer Brown and Globe Law and Business author, Edmund Parker, offered a variety of perspectives on the role of derivatives in the recent crisis. Ed started with a reminder that it was not that long ago that there was wide-ranging support from both sides of the Atlantic for the light-touch approach to regulation. It was following the downturn in 2009 and the collapse of AIG and Lehmans that the blame turned increasingly to derivatives. The panel, comprised of Dr Jean-Pierre Zigrand from the LSE, Natalie Everaert, director and counsel at Citigroup, Martin Gudgeon, managing director at Blackstone and Professor Tim Congdon, regular commentator on public policy issues, addressed a series of topical questions. In answer to the first question on whether derivatives should shoulder the blame for the crisis, Dr Zigrand highlighted the contribution that derivatives make and the feedback effect in a crisis, whereby everything is magnified, intensifying the situation. Martin Gudgeon agreed that derivatives should not shoulder the blame and suggested that the issue was that risk was not priced correctly.

 

On the question of central clearing, Natalie confirmed that the feeling is that some sort of central clearing needs to be mandatory. She recommended that the key should be international dialogue and decision-making in determining which contracts are eligible and who should decide. On the key question of 'too big to fail', Professor Congdon offered robust argument that it was the huge increase in capital requirements that was the cause of collapse in the economy. Martin agreed with the view that it is not capital that is the issue but confidence. It is not the fact the banks are required to increase their capital but the perception that this leads to that is the problem.

 

Natalie then explained the range of end-users of derivatives who are not just the large industries. She suggested that hedging is key and cannot be limited. A concern is that the likely impact of regulation is that hedging will be more difficult and more costly, leading to constraints on liquidity.

 

The speakers had a range of views on lessons learned from the crisis from Dr Zigrand who suggested that more capital is needed in the good times to Natalie's recommendation of a global emergency response team, to Martin's hypothesis that we are in another bubble, fuelled by cheap government finance and Professor Congdon's view that the lender of last resort needs to be prepared to lend. Raising the temperature of the debate towards the end of the discussion and perhaps controversially, Professor Congdon suggested that government support should not be regarded as a waste of money as public finances are benefiting from guarantee fees and potential profitable investment.

 

The discussion was followed by drinks and canapés generously provided by the hosts, Mayer Brown.

 

Sian O'Neill