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Investor Vigilance: Custodians and Counterparties
“MF Global just filed for bankruptcy,” were the first words my friend said to me on the phone. Before I could respond, he added, “Don’t worry about me; I moved most of my account away from them a few days ago. What I’m calling about now is this: How concerned should I be about the U.S. bank lenders to MF Global, especially the lead banks that syndicated the loans? Do you think they have enough exposure to bring them down as well?”
I shook my head in disbelief; it was not likely that MF Global would bring the U.S. banking system to its knees, but I understood why my friend was concerned enough to call me. Only a few years ago — in 2008, in fact — we had several unsettlingly similar conversations. That was clearly the reason he was reaching out to me now. I wasn’t sure how to respond. I’m a lawyer not a financial analyst, albeit a lawyer who knows a lot about the innards of clearing and settlement in the United States.