benoit cœure : the known unknowns of central clearing speech by mr benoit cœure, member of the executive board of the european central bank, at the meeting on global economy and financial system, hosted by the university of chicago booth school of business initiative on global markets, coral gables, 29 march 2014. * * * accompanying slides can be found on the european central bank ’ s website i would like to thank andreas schonenberger for his contributions. i remain solely responsible for the opinions contained herein. ladies and gentlemen, today, i want to share some thoughts with you on central clearing. [ slide 1 ] at the pittsburgh summit in 2009, g20 leaders committed to have all standardised otc derivatives contracts cleared through central counterparties ( ccps ). the mandatory use of central clearing as a regulatory tool for mitigating systemic risk is a fairly new feature in financial market regulation. central clearing definitely has the capacity to promote financial stability, provided it is appropriately used and any potential side effects are well understood and effectively mitigated. in that context, there are still a number of questions that we need to look at. let me call them the “ known unknowns ” of central clearing. [ slide 2 ] i want to touch upon the following issues : • systemic effects of mandatory clearing • recovery versus resolution of central counterparties • optimal design of loss allocation tools • evolution of global clearing structures systemic effects of mandatory clearing [ slide 3 ] let me start with the systemic effects of mandatory central clearing. clearing houses have done their job very well in the crisis, contrary to other financial institutions, and successfully faced the challenges of a rapidly growing volume of transactions. we want to make sure that the same holds true in the new world of mandatory clearing. [ slide 4 ] the systemic effects of central clearing are numerous and, although the overall balance is undoubtedly positive, some of them are ambiguous and should be addressed carefully. on the one hand, mandatory clearing reduces systemic risk very significantly as it • leads to the collateralisation of trades that might have remained uncollateralised otherwise, • enhances risk management by means of sophisticated margining methods, • allows for mutualisation of risk, which promotes the resilience of the financial system, especially in the event of catastrophic scenarios, bis central bankers ’ speeches • offers multilateral netting so that less collateral is needed to manage risks, and • facilitates risk management as it helps to overcome information asymmetries that participants in non - centrally

s success. in a rapidly changing world, economically valuable skills can be maintained only through learning that extends beyond traditional schooling to encompass training and re - training well into the middle years of life. north carolina offers a good example of these trends. in the past decade, the state has lost about one - third of the manufacturing jobs it had at the beginning of the decade – a loss of about 250, 000 jobs. about 60 percent of the losses occurred in the textile and apparel industries. in the textile mills in particular, employment across the state is down two - thirds from the level of ten years ago. in the furniture industry, which accounts for the largest share of the remaining job losses in north carolina manufacturing, employment in the state has dropped from 82, 000 in 1999 to less than 51, 000. the charlotte area itself has experienced a number of plant closings, including the 2003 shutdown of the pillowtex plant in nearby kannapolis. there is, of course, another side to the coin of economic change here. despite losing an average of 25, 000 manufacturing jobs each year over the past decade, north carolina has managed a net increase of 44, 000 jobs per year in total nonfarm employment over the same period. those two numbers together imply that, on average, north carolina has enjoyed an annual net gain of 69, 000 nonmanufacturing jobs. the largest net increases have been in education and health care, professional and business services, and the leisure and hospitality sector. thus, like many other vibrant regions of the country, the charlotte area has grown by developing a high - productivity service economy. indeed, what happened to the former pillowtex site itself is a good metaphor for the transformation under way in the region. though the loss of manufacturing jobs is painful, the ongoing development of the pillowtex site as the north carolina research campus illustrates this region ’ s ability to shift resources from industries that are shrinking to those that are expanding the north carolina research campus is a public - private, 350 - acre life sciences hub near charlotte that includes partnerships with duke university, the university of north carolina, the north carolina community college system, and other institutions of higher education. this is one high - profile example, but the transformation has also been happening in less dramatic fashion through the development of hundreds of smaller businesses throughout the region. even within the manufacturing sector, a number of firms – typically smaller operations with relatively few employees – have begun to exploit nontraditional niches