Margin Requirements for Over-the-Counter Derivatives: A Supervisory Perspective

John Feid and David Lynch

3.1 INTRODUCTION

3.1.1 A decade after the financial crisis

In a speech delivered at the annual meeting of the Federal Reserve System held at Jackson Hole, Wyoming, Federal Reserve Board Chair Janet L. Yellen took stock of the effects of financial reform ten years after the crisis (Yellen 2017). She observed that, in addition to the impact the Comprehensive Capital Analysis and Review (CCAR) and other capital measures had in increasing the resilience of large financial institutions, other reforms in the wake of the crisis had reduced the likelihood of a similar financial disruption in the future. Using AIG as an example of the impact of the shadow banks, she described how this firm had entered into OTC derivative contracts that were inappropriately risk managed and opaque. Given the magnitude of these contracts and the importance of the survival of AIG, the US Federal Reserve had no choice but to offer assistance to the firm so as to keep these contracts and other services provided by AIG intact.

In describing the financial situation in 2007–8, Yellen (2017) offered this observation:

[a] specific example of such risks, illustrative of broader developments, was the