During a keynote speech at the Federal Reserve in Washington D.C, Adam Ludwin, CEO of Chain, suggested that blockchain has the capabilities to overcome transparency issues linked to the 2008 crisis.
“Firms are attempting to improve the functioning of capital market use cases like repo and commercial paper in the so-called ‘shadow banking system’”, said Ludwin.
“Well, blockchain technology now provides that visibility (as well as protections for privacy). We now have a tool to measure systemic leverage and counterparty exposure. We can monitor compliance in real-time. We can answer questions about collateral ownership and rehypothecation that were at root in the run on the system in 2007.”
Blockchain technology has been hailed by custodians as being the future of the industry with potential to streamline processes such as settlement, clearing and corporate actions.
The suggestion is the latest development concerning blockchain technology which was created as a public ledger of every bitcoin transaction that has ever been carried out.
Recent research from State Street suggested that only 7% of asset owners and managers currently have blockchain initiatives underway despite 57% believing that the distributed ledger technology will be widely adopted in the industry over the next five years.
Ludwin’s suggestion comes in line with CFTC commissioner Christopher Giancarlo’s keynote speech in April suggesting that transparency issues needs to be addressed to avoid a repeat of the 2008 financial crisis.
“At the heart of the financial crisis, perhaps the most critical element was the lack of visibility into the counterparty credit exposure of one major financial institution to another.
“Probably the most glaring omission that needed to be addressed was that lack of visibility, and here we are in 2016 and we still don’t have it.”