BUNDESBANK governor Axel Weber has ramped up his campaign to become the next governor of the European Central Bank, with a proposal for a Eurozone government-run clearing house forming a major plank of his platform, City A.M. can reveal.
Weber told a closed-door gathering in Davos that he plans to advocate the creation of a public clearing house for trading over-the-counter (OTC) derivatives, instruments such as collateralised debt obligations (CDOs) and interest rate swaps.
Weber is the front-running candidate to replace current ECB president Jean-Claude Trichet, who will retire in October. The decision rests with Eurozone ministers and observers say the clearing house proposal could win Weber a raft of support.
“It will strike a chord with Eurozone countries,” said Anthony Belchambers, chief executive of the Futures and Options Association, an industry group. He added: “The ECB is notably trying to have a much more significant role in the regulation of clearing houses. It is very keen to see itself as part of a European college of regulators.”
The creation of a public clearing house would go much further than the current proposals to overhaul OTC derivatives trading, which involve forcing more trades and disclosures through central, regulated houses.
It is not known if Weber supports running a public clearing house in competition with private houses or as a replacement, but it would mean the Eurozone’s regulators taking on a slew of counterparty risk in the trade of complex financial products worth trillions of euros.
“It would raise all sorts of questions... Some feel that using regulatory mandates to change the shape of markets is quite a dangerous game,” says Belchambers. “And what happens to existing clearing houses?” The Bundesbank refused to comment.