Central Counterparties: Addressing their Too Important to Fail Nature

January 27, 2015

Preview Citation

Format: Chicago

Froukelien Wendt. Central Counterparties: Addressing their Too Important to Fail Nature, (USA: International Monetary Fund, 2015) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Central counterparties (CCPs) can offer significant benefits to a market. However, CCPs are also highly interconnected with financial institutions and markets and therefore too important to fail. The increased volumes cleared through CCPs and their increasing global scope, in particular in the OTC derivatives market, make it even more important that systemic risks related to CCPs are managed. This paper argues that the current set of international policy measures does partly address these risks, but that alternative policy measures are needed to reduce remaining systemic risks. For example, the paper recommends network analysis to be conducted by CCPs and authorities to gauge potential losses and suggests a common international approach to central bank services to help reduce the dependency of CCPs on services provided by commercial banks.

Subject: Asset and liability management, Banking, Central counterparty clearing house, Central securities depositories, Collateral, Commercial banks, Financial institutions, Financial markets, Liquidity

Keywords: Central counterparties, Central counterparty clearing house, Central securities depositories, Collateral, Commercial banks, Defaulting clearing member, Derivatives market, Europe, Global, Interconnectedness, Interdependencies, Liquidity, Margin calls, Market participant, Market volatility, Recovery and resolution, Recovery plan, Risk waterfall, Too important to fail, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/021
Stock No:

WPIEA2015021
ISBN:

9781475572933
ISSN:

1018-5941

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