Bernanke, Aiming to Curtail Market Risks, Met NYSE, CME Chiefs

By Scott Lanman

Aug. 28 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, aiming to curb risks in derivatives markets, met in June with NYSE Euronext Chief Executive Officer Duncan Niederauer and CME Group Inc. Chairman Terrence Duffy.

The Fed chief met on June 17 with Niederauer and on June 27 with Duffy, according to Bernanke's schedule for the month, released to Bloomberg News after a Freedom of Information Act request. CME is the No. 1 futures exchange in the U.S., and NYSE Euronext is the world's biggest owner of stock exchanges.

Bernanke and Duffy ``discussed a number of economic issues, including the credit markets and over-the-counter derivatives,'' CME spokesman Allan Schoenberg said in an e-mail message.

The central bank is trying to improve processing of trades in the $454 trillion over-the-counter derivatives markets, an effort Bernanke said last month would help the financial system ``withstand future shocks.''

The New York Fed and 17 securities dealers including Goldman Sachs Group Inc. and JPMorgan Chase & Co. agreed in July to form a central counterparty for the credit-default swap market that could absorb the failure of one of the major dealers.

Fed officials began urging banks in 2005 to improve processing of credit-default swaps as a backlog of unsigned trades ballooned to the equivalent of more than 17 days of trading volume.

CME and NYSE are seeking to expand into the $62 trillion market for credit default swaps, which let investors bet on the likelihood that companies will fail to repay debt. NYSE spokesman Richard Adamonis declined to comment.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and other assets, or linked to specific events like changes in the weather or interest rates.

At Risk

The amount U.S. commercial banks have at risk in derivatives markets jumped 50 percent in the first quarter as the credit crisis triggered an increase in the value of the contracts, the Office of the Comptroller of the Currency said last month.

Bernanke in June also continued weekly breakfasts with Treasury Secretary Henry Paulson. The Fed chief met twice with Securities and Exchange Commission Chairman Christopher Cox as they worked out an agreement on sharing information about the capital and risk-management systems of securities firms.

Bernanke had lunch at the White House with President George W. Bush on June 3. Earlier that day, the chairman had given a speech voicing concern about the declining value of the dollar.

The Fed chief delivered private remarks on June 6 to the Bilderberg Group, a gathering of North American and European government and business leaders, at a hotel in the Washington suburb of Chantilly, Virginia.

U.K. Leaders

Bernanke also met with a number of British officials. He met in his office on June 5 with Howard Davies, director of the London School of Economics, who formerly served as chairman of the U.K. Financial Services Authority and deputy governor of the country's central bank.

The daybook shows Bernanke also met for about 30 minutes on June 6 with George Osborne, Treasury spokesman for the U.K.'s opposition Conservative Party.

The British Embassy in Washington hosted a dinner on June 24 for the Federal Open Market Committee while policy makers were in town for a two-day meeting on interest rates.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net