CHICAGO -- A futures-style clearing house for the interbank swaps market would reduce risk in the financial system, according to Merton Miller, a Nobel Prize-winning economist.

Mr. Miller, a professor at the University of Chicago business school, said that a daily settlement system and related clearing procedures would reduce "systemic risk in the interbank markets . . . somewhat."

|Let It Evolve'

But he said, in a speech at the Federal Reserve Bank of Chicago's annual banking conference, that a clearing house should not be mandated by regulation. "Let it evolve rather than as a mandate from regulators."

He also said that unified clearing - originally proposed by the Brady Commission on the 1987 stock market crash to alleviate pressure from shocks to the financial system - probably would not work.

"The Brady commissioners never realized how difficult it is to merge clearing operations," Mr. Miller said. He said the Chicago Board of Trade and Chicago Mercantile Exchange have been working for three years on merging their separate clearing systems but "no unification is in sight."

The expected savings from merging the Chicago clearing houses "appear to be a lot smaller than the costs," Mr. Miller said.

In addition, "clearing houses are important competitive weapons" and exchanges are reluctant to give up their own clearing operations.

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