and more uniform riskmanagement practices, and more comprehensive regulation. this strategy places a heavy burden on ccps, market participants, and regulators alike to build a strong market and regulatory infrastructure and to get it right the first time. it has also been frequently observed that central clearing simplifies and makes the financial system more transparent. that, too, has an element of truth to it, but let ’ s take a closer look. charts similar to the ones shown in figure 1 are frequently offered to illustrate the point that, as a ccp becomes a buyer to every seller and a seller to every buyer, it causes risks to be netted and simplifies the network of counterparties. the dizzying and opaque constellation of exposures that exists in a purely bilateral market, illustrated in the chart on the left, is replaced by a neat hub - and - spoke network that is both known and more comprehensible, illustrated in the chart on the right. the ccp and its regulators are then in a position to observe the ccp ’ s entire network, which can be important in the event that one or more clearing members become impaired. ccps may also be able to coordinate a response to problems in their markets in ways that individual clearing members would find very difficult. figure 2 shows that, at the same time, in the real world ccps bring with them their own complexities. as the figure shows, we do not live in a simple world with only one ccp. we do not even live in a world with one ccp per product class, since some products are cleared by multiple, large ccps. 4 also, significant clearing members are often members of multiple ccps in different jurisdictions. the disruption of a single member can have far - reaching effects. accordingly, while ccps simplify some aspects of the financial system, in reality, the overall system supporting the otc derivatives markets remains quite complex. to carry out their critical functions, ccps rely on a wide variety of financial services from other financial firms, such as custody, clearing, and settlement. many of these services are provided by the same global financial institutions that are also the largest clearing members switzerland : bank for international settlements and international organization of securities commissions, april ). as an example, both the chicago mercantile exchange and the intercontinental exchange clear credit default swaps. bis central bankers ’ speeches of the ccps. the failure of a large clearing member that is also a key service provider could disrupt the

manual ( pdf ), section 1000. 1 ( washington : board of governors, may ). bis central bankers ’ speeches let me conclude my remarks by again thanking you for the opportunity to share my thoughts today. i certainly don ’ t claim to have all the answers when it comes to supervising community banks, but i hope my remarks will at least continue our conversation about how best to structure a regulatory and supervisory framework for the banking system that effectively supports the real economy and encourages sound and sustained lending to creditworthy borrowers. in order to sustain the economic recovery, we need strong, well - run community banks that operate in a framework of smart and effective supervision. i commend you for the work that you are doing every day in your communities, and i look forward to continuing the dialogue. bis central bankers ’ speeches