WASHINGTON (Reuters) - A central clearinghouse for credit default swaps would reduce risk, but also concentrate it, and the proper regulation must be in place, Federal Reserve Vice Chairman Donald Kohn told lawmakers on Thursday.
“A central clearinghouse can reduce risk, but it concentrates risk, so once that risk is adequately taken care of, overseen by a regulator, I think it has all the advantages,” Kohn told the Senate Banking Committee in answering questions after testifying before the panel.
Kohn said that putting a clearinghouse in place would require appropriate regulatory approval, but not legislation.
His comments came as a group of the largest credit default swaps dealers has been working with the Federal Reserve Bank of New York to develop a clearinghouse.
Those involved in the clearinghouse plan include: Goldman Sachs; Citigroup; Deutsche Bank; JPMorgan Chase;, UBS; Credit Suisse; Merrill Lynch; and Bank of America.
Reporting By Joanne Morrison; Editing by Dan Grebler