Yesterday, the Macroeconomic Assessment Group on Derivatives (MAGD) issued its second report prophesying the (necessarily) macroeconomic effects of planned regulatory reforms. The MAGD was set up under the auspices of the ODCG and comprises financial and economic “modelling experts” from central banks and other authorities. The 79 page report came to the unsurprising conclusion that, once fully implemented, the main benefit of the reforms would arise from reduced counterparty risk via multilateral netting and increased use of collateral, consequent upon central clearing. The 29 MAGD magi assessed the costs of current and future reforms at o.o4% of GDP per annum, resulting from the passing on the costs of capital and collateral. However, all is well- the benefit of enhanced crash-aversion is previewed as a positive 0.12% GDP p.a. Although some would consider that economic modellers have a far more consistent record in contributing to crashes rather than predicting them; the MAGD “measures” the likelihood of a derivatives-fuelled future crash at 0.26%- so that’s all right then.
1.The OTC Derivatives Coordination Group (ODCG), comprised of the Chairs of the Basel Committee on Banking Supervision (BCBS), the Committee on the Global Financial System (CGFS), the Committee on Payment and Settlement Systems (CPSS), the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO).