Jeremy Grant’s article in today’s Financial Times reports on the House of Lords’ view that European clearing houses should not be regulated by a EU authority since the EU would not be able to bail out a clearing house if it collapsed. The Lords report, which can be found here, concludes that “in the absence of any crossborder fiscal burden-sharing arrangements for failing financial institutions, central counterparties cannot be supervised at an EU level because the EU itself does not have the financial resource within the budget to bail out a large central counterparty”.
This surely confuses two elements of the governance structure for clearing houses – regulation and emergency financial support. In current governance structures the responsibility for these two elements is quite separate. The FSA would not provide financial support in the event of the London Clearing House going bust.
The real question is whether a European-level regulatory authority would improve the regulation of clearing houses.