Thanks for the comment. A couple of thoughts:

1. If regulatory transparency is the goal, it can be achieved without clearing (and the associated risk sharing) by mandating reporting.

2. Your points re the efficacy of regulatory transparency are well-taken. Just looking at derivatives positions alone is insufficient to determine a firm’s risk of failure. A complex financial firm (e.g., a big bank) has many non-derivatives positions. Its derivatives positions can be risk increasing or risk reducing, depending on how they covary with the other positions/assets/liabilities on the firm’s books.

3. Even though I doubt (as you do) that regulatory transparency could appreciably improve regulator’s ability to predict and perhaps preempt failure, it could make it easier to diagnose the implications of an impending failure; to identify the likely fallout of the failure of a particular institution; and to craft an effective response.

4. That said, regulatory transparency is a bad reason to advocate clearing (a risk sharing mechanism) because there are other ways of achieving the same objective.

I am deeply skeptical that even with full information about every derivative position out there that it would be possible for regulators to deduce which firms were more likely to fail, much less to tell if the financial system as a whole was in a state of critical fragility. And of course, there would always be some unknown amount of OTC or other “off the books” risk that would not be readily observable, since customized contracts and such would still be needed for some purposes.