[seanhunter]

That's a good point that I didn't really address. Why can't you just have a centralised database?

1) If you had a centralised database, it would be extremely difficult to prevent the people operating the central database from exploiting the fact that they literally know how every bank in the financial system is positioned. It would be the juciest inside information ever.

You definitely need some kind of system where both sides can know they have agreed without anyone within the system being able to get access to all the facts globally in a timeframe where they would be able to take advantage of this knowledge.

2)Who would run it? The only feasible bodies that I could see would be the central clearing houses and they definitely haven't shown the level of operational competence that would be required given that if this thing went down pretty much all finance would stop until it was fixed. Banks use the swap rates to bootstrap their discount curves so if the swaps market disappeared for a few hours literally noone in the world would be able to accurately risk-manage any sort of trade that was dependent on future cashflows.