Brooksley Born, whose effort to regulate over-the-counter derivatives was thwarted when she served as a regulator in the 1990s, said a large U.S. bank failure would require a bailout to avoid disrupting the economy.
“Too big to fail is the primary problem,” said Born, former chairman of the Commodity Futures Trading Commission. Born, a retired partner of law firm Arnold & Porter LLP in Washington, was speaking at a panel discussion in Washington today held by advocacy group Public Citizen.
Born’s 1998 proposal to consider regulating OTC derivatives was opposed by the Clinton administration and eventually dropped. The OTC market later included the toxic instruments that contributed to the demise of Lehman Brothers Holdings Inc. and the 2008 financial crisis.
She also said today that OTC swaps speculation causes asset bubbles.
The global OTC derivatives market mushroomed to a notional value of almost $600 trillion in 2007 from about $28 trillion at the time of Born’s proposal.
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