Costs of derivatives “exaggerated” and benefits “downplayed”, say Fed officials

Two officials at the Federal Reserve Bank of Dallas have dismissed suggestions that the light oversight of derivatives during the 1990s has led to a “breakdown” of the banking system.

“Close examination... suggests the potential costs of derivatives are often exaggerated and their benefits downplayed,” said Jeffery Gunther a research officer, and Thomas Siems, a senior economist and policy adviser, both working in the financial industry studies department of the Federal Reserve Bank of Dallas.

“Recent data provides evidence that despite talk of a breakdown, the banking system