I would like to focus my remarks on swaps market reform and specifically on how it fits into the international context.

International Swaps Market – Historically Unregulated

As you all know, with just the click of a mouse, risk can spread around the globe. We surely saw this as the financial system failed in 2008.

As the financial system failed in 2008, most of us learned that the insurance giant AIG had a subsidiary, AIG Financial Products, originally organized in the United States, but run out of London. The fast collapse of AIG, a mainstay of Wall Street, was again sobering evidence of the markets’ international interconnectedness. Sobering evidence, as well, of how transactions booked in London or anywhere around the globe can wreak havoc on the American public.

Swaps, now comprising a $700 trillion notional global market, were developed to help manage and lower risk for commercial companies. But they also concentrated and heightened risk in international financial institutions. And when financial entities fail, as they have and surely will again, swaps can contribute to quickly spreading risk across borders.

Leading up to the financial crisis, swaps were basically not regulated in Asia, Europe or the United States.

There were many reasons put forth as to why swaps should not be regulated. Let me touch upon just three of those reasons, as I believe they are relevant to today’s ongoing debates about the proper role of financial regulation.

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