Since the downfall of the financial system law makers are trying to solve the issue by clearing the derivatives transaction issue. This is known as clearinghouse. Clearinghouse will help consolidate the issue and with reserve accounts help to enclose the systemic risk by stopping the consequences of defaulting from spreading (Griffith, 2012, p. 1153). The only way this problem is going to get fixed is if the Congresses regulatory solutions that they have come up with end up working and how they continue to be maintained by the people governing them.
Griffith’s (2012) research found: The underlying problem facing clearinghouse is the fact that governance is pervasive free-riding created by the fact the the control of the systemic risk has the character of a public good. (p.1240) Because of the issue of free-riders the enticements of more money in each of the groups with profitable interest have been infected with ethical …show more content…
(Griffith, 2012, p. 1153). To make sure that these groups of people are protected from the profitable interest this group must have control over systemic risk.
The Supervisory Board in Europe In some European countries there is a dual-board organization that has both a management and supervisory board. The supervisory board and a corporate governance called co determination work together. This model gives hope to solving the governance issue with derivatives clearinghouse. This organization called German AG is mandated by the German Federal Stock Corporation Act and it forces every company to have a management board and a supervisory board (Griffith, 2012, p. 1227). In Germany the law is that the management board is in charge of all the day to day operations of the company as a whole. The supervisory board under German Law is like having a board of directors. These people are elected by their peers and granted authority to employ, fire, and supervise the associates of the management board. The supervisory board is not involved in the day to day operations of the company (Griffith, 2012, p.