[PEN-L:28220] derivatives redux

["Ian Murray" <seamus2001@xxxxxxxxx>]

How could things get worse? For an answer, consult the annual report of the Bank for
International Settlements, issued this month. Under a section entitled "Seeds of
Concern," the BIS notes that financial consolidation has meant that just a few giant
banks now control the unregulated market for financial derivatives. The top three
banks controlled 89 percent of foreign-exchange derivatives booked by U.S. banks in
2001, up from 59 percent in 1995; the top three banks' share of U.S. interest-rate
derivatives rose to 86 percent in 2001 from 56 percent in 1995; the top three's share
of credit derivatives rose to 94 percent in 2001 from 79 percent in 1998.

In laymen's language, that means that, with fewer and fewer big banks, a failure by
any one of them could be disastrous. That's one of the problems with globalization --
it puts everyone's eggs in the same few baskets.

http://www.washingtonpost.com/wp-dyn/articles/A28798-2002Jul18.html