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August 30, 2005

Prudence

Tim Geithner is a prudent man:

Fed Officials Summon Wall St. Firms to Discuss Derivatives - New York Times: By RIVA D. ATLA: The Federal Reserve Bank of New York has called a meeting of top Wall Street firms to discuss practices in the booming, if opaque, credit derivatives market.... The meeting, which will be held on Sept. 15, is being called three months after global stock and bond markets were rattled by fears that some of the largest banks were caught wrong-footed on some credit derivatives bets.... A letter went out this month from Timothy Geithner, the president of the New York Fed, to executives at 14 dealers inviting them to discuss "a range of issues in the credit derivatives market," said Peter Bakstansky, a spokesman for the New York Fed. The meeting will focus in particular on issues tied to the processing of these trades, he said. Mr. Bakstansky declined to list the banks invited to the meeting, but the largest participants in the market include J. P. Morgan, Deutsche Bank, Goldman Sachs and Morgan Stanley.

Representatives of the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the New York State banking department will attend the meeting, Mr. Bakstansky said. Banking regulators from Britain, Switzerland and Germany have also been invited. The rapid growth of the credit derivatives market was a major focus of a report in July by the Counterparty Risk Management Group, a team of top bankers originally formed at the request of the New York Fed to assess market risk... the financial services industry "has had very limited experience with settling large numbers of transactions following a credit event," like a corporate default or bankruptcy...

Posted by DeLong at August 30, 2005 03:02 PM