CFTC Chairman Talks Blockchain’s Take on Regulators’ Real-Time Response to 2008 Crash

By Kapil Gauhar

CFTC Chairman, Christopher Giancarlo, has said, if blockchain had been in use previously, it would have transformed regulators’ real-time responses to the 2008 global financial crash. Giancarlo made his remarks amid the 4th Annual DC Blockchain Summit in Washington D.C. held on March 6.

In his speech, Giancarlo took on his personal experience as an executive vice-president at brokerage giant GFI Group – which operated one of the world’s largest trading platforms for credit default swaps, “then the epicentre of systemic risk.” He recalled the disorder and panic on the GFI broker floor, as the global credit crisis cascaded out of control –

“I remember a call from a U.S. bank regulator asking about CDS trading exposure of several major banks, including Lehman Brothers. In fact, trading conditions were deteriorating by the hour. It was clear that the regulator had little means, short of telephone calls, to read all the danger signals that the CDS markets were broadcasting.”

Giancarlo said –

“Blockchain technology would have provided a golden record of the real-time ledgers of all regulated trading participants and prevented the convoluted fashion in which regulators struggled to maintain orderly markets at the peak of systemic failure.”

Ahead of the inception of real-time distributed ledgers, he said –

“Regulators were forced to assemble piecemeal data to recreate complex, individual trading portfolios, manually calling around to brokerage firms such as GFI to glean market information.”

He thus stated –

“What a difference it would have made a decade ago if blockchain technology had been the informational foundation of Wall Street’s derivatives exposures. At a minimum, it would certainly have allowed for far prompter, better-informed, and more calibrated regulatory intervention instead of the disorganized response that unfortunately ensued.”

Giancarlo further noted –

“Blockchain, in conjunction with modern cognitive computing capabilities, could have allowed regulators to swiftly identify the patterns and red flags signalling an intensified risk of bank failures, such as anomalies in market-wide trade activity and diverging counterparty exposures.”

He also suggested-

“Such technologically-enhanced insight would have revealed that the $400 billion notional of outstanding credit default swaps written on Lehman Brothers represented under $8 billion in net market exposure to failure of the firm.”

As reported, Giancarlo’s remarks have been reverberated by the former vice president of North American investment banking at JPMorgan Chase. Even the former vice-president of JPMorgan Chase similarly concluded from personal experience that “Blockchain maybe the key to avoiding the next global financial crisis.”