Former Federal Reserve Governor Randy Kroszner, who currently serves as an external member of the Financial Policy Committee at the Bank of England, appeared on stage at the International Derivatives Expo in London on Tuesday to discuss the role of central banks in today’s rapidly evolving markets. Kroszner outlined what he thinks are the biggest challenges to financial stability, as well as how central banks are handling market volatility.
Kroszner touched on the interconnectedness of CCPs and how this has increased since the Global Financial Crisis, and the need to make this front and centre among CCPs but also with regulators and at supervisory level.
It’s an easy mistake to make to focus on managing the next crisis instead of thinking long term, Kroszner said, and this was likely what led to the collapse of Credit Suisse.
Kroszner also discussed the pros and cons of central banks’ role in backstopping CCPs.
“When push comes to shove, everything always goes back to the central bank. Central banks are never popular, they’re ignored when when everything’s going well, because that’s, of course, the brilliance of the legislators or the private sector. Something goes wrong and it’s like, how could you let that happen? Right? How could this possibly have happened under your watch?” Kroszner said.
That’s why it’s good to have supervisory structures or regulation in place to try to minimise the potential for more issues, he added.
“Ultimately, the central bank would be on the hook for that either directly or indirectly, and I think it’s valuable to have structures in place that think through that,” he said.