Not so long ago, when the industry was in full auto destruct mode, governments and regulators stepped for the big bail-out. Naturally that came at a price. The internet might just be too small to list all the measurements, fees and regulations that followed but one thing stood out; risk associated with the financial industry had to become more visible and had to be contained.
Centralized clearing for those pesky OTC transactions became an essential part of this. It would enhance transparency, deal with counterparty risk and it seemed like the best solution to prevent a domino effect. Instead of lining the domino blocks next to each other, you'd stack them on top of each other.
With that imagery in mind, a top US federal researcher identified the next problem. The stack at the CCP might get too high at a certain point (concentration risk). No, who could have foreseen that?
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