Blocking Competition in OTC Derivative Trading

The NYT ran a long piece by Louise Story describing how a few large banks operate to maintain their control of the OTC derivatives market against would-be competitors. It does a good job of giving the readers a feel for how difficult it can be to enter the market. But while one feels this, the story doesn’t explain the underlying forces that help maintain entrenched interests even when competitors could add value to potential customers. For that kind of analysis, one has to look elsewhere — for example, to this report from the NY Fed.

I have to say, I was also startled by the title of the story, which mentioned a “secretive banking elite.” Given the sad history of conspiracy theories associated with banking, and the antisemitism that often goes along with it, I would avoid using words like this. It’s always astonishing that these theories continue to live, but they do. Anyway, what the big banks are doing in this market is all being done out in the open, so I don’t see the secrecy.

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