But UCLA's Andy Atkeson, Andrea Eisfeldt and Pierre-Olivier Weill are also masters of understatement
In conclusion... market participants and
regulators are still in disagreement about whether the private profits
that large dealer banks gain from intermediating trade in OTC [derivative] markets
encourage socially optimal market structures.
But that hasn't exactly stopped the regulators from doing something...anything
While efforts to promote centralisation and transparency
in OTC markets should help to shed light on the surplus that is created
and its distribution across participants, they will also change this
surplus in ways that may not be anticipated.
Many of the proposed and
implemented regulations effectively reduce the surplus accruing to
dealers [large banks], and so reduce their incentives to participate in OTC markets.
We pause, for effect.
Clearly, this hurts dealers; however, the overall change in value may
either increase or decrease...
Again, our bold, and our pause.
...depending on whether there was previously
too much or too little dealer activity. Our model shows that typically
in equilibrium some reduction in dealer rents is warranted. However, one
should be careful not to reduce rents so much as to discourage socially
Or, as Edward Teller once said, apropos
some scientific controversy; Sometimes we have to do that which is very difficult. Sometimes we have to think.
Our work also suggests that particular care
should be given not to reduce rents when dealer participation costs are
high, such as during times when negative shocks drive exit.
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