EU's Clearinghouse Plan: The New Too-Big-to-Fail

The video discusses recent changes in the European Union's approach to financial regulations, particularly concerning clearing houses. These entities are now recognized as potential systemic threats if a major bank defaults. The EU is finalizing a regulatory framework to address these risks, partly in response to the Brexit vote. The European Central Bank may provide liquidity to struggling clearing houses, suggesting they should be located within the euro area for better access to resources.

What has the European Union recognized about clearing houses?

• They pose potential systemic threats.

• They are completely risk-free.

• They are irrelevant to the financial system.

• They should be abolished.

What could happen if a large bank defaults on its obligations to a clearing house?

• The bank will simply be fined.

• A systemic threat could arise.

• There will be no impact on the financial system.

• The clearing house will automatically cover the loss.

How does the clearing house function in a trade?

• It acts as a direct lender.

• It stands between the two parties of a trade.

• It only deals with banks.

• It only deals with buy-side funds.

What role does the European Central Bank play in relation to clearing houses?

• It has no involvement with clearing houses.

• It regulates all clearing houses globally.

• It only deals with banks.

• It provides liquidity to clearing houses in need.

Why might clearing houses be located in the euro area?

• To avoid taxes.

• To have access to the central bank's liquidity window.

• To be closer to major banks.

• To reduce operational costs.