{
  "title": "Capital Requirements for Over-the-Counter Derivatives Central Counterparties",
  "publication": "IMF Working Papers, January 8, 2013",
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  "summary": "The central counterparties dominating the market for the clearing of over-the-counter interest rate and credit derivatives are globally systemic.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- The central counterparties dominating the market for the clearing of over-the-counter interest rate and credit derivatives are globally systemic.\n- Employing methodologies similar to the calculation of banks’ capital requirements against trading book exposures, this paper assesses the sensitivity of central counterparties’ required risk buffers, or capital requirements, to a range of model inputs.\n- The paper’s results suggest considerable benefits from having prudential authorities adopt a more prescriptive approach to central counterparties’ risk buffers, in line with recent enhancements to the capital regime for banks."
    },
    {
      "heading": "Key findings on model sensitivity",
      "content": "- Required risk buffers are highly sensitive to calibration choices:\n  - Sensitivity to whether key model parameters are calibrated on a point-in-time versus stress-period basis.\n  - Sensitivity to whether the risk tolerance metric adequately captures tail events.\n  - Sensitivity to the ability—or lack thereof—to define exposures on the basis of netting sets spanning multiple risk factors.\n- The analysis employs methodologies similar to banks’ trading book capital calculations to assess these sensitivities."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Considerable benefits arise from prudential authorities adopting a more prescriptive approach to central counterparties’ risk buffers.\n- Aligning central counterparty capital requirements with recent enhancements to the capital regime for banks is recommended."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subject: Banking; Central counterparty clearing house; Credit default swap; Currencies; Econometric analysis; Financial markets; Financial regulation and supervision; Hedging; Money; Vector autoregression\n- Keywords: capital; Central counterparties; Central counterparty clearing house; clearing OTC-CDS; Credit default swap; Currencies; default fund; derivatives position; Europe; financial market; G-14 dealers; Global; Hedging; IM requirements; initial margin; interest rate; interest rate derivative; interest rate derivative contract; market condition; market value; meeting CM default; OTC-D market; OTC-interest rate products; overnight rate; risk buffer; Vector autoregression; WP\n\n---\n\n Content in this bundle\n\n- wp1303\n  - wp1303 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1303 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-requirements-for-over-the-counter-derivatives-central-counterparties-40220"
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    "Authors: Li Lin, Jay Surti",
    "Published: January 8, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475535501.001",
    "The central counterparties dominating the market for the clearing of over-the-counter interest rate and credit derivatives are globally systemic.",
    "Employing methodologies similar to the calculation of banks’ capital requirements against trading book exposures, this paper assesses the sensitivity of central counterparties’ required risk buffers, or capital requirements, to a range of model inputs.",
    "The paper’s results suggest considerable benefits from having prudential authorities adopt a more prescriptive approach to central counterparties’ risk buffers, in line with recent enhancements to the capital regime for banks.",
    "Required risk buffers are highly sensitive to calibration choices:",
    "The analysis employs methodologies similar to banks’ trading book capital calculations to assess these sensitivities.",
    "Considerable benefits arise from prudential authorities adopting a more prescriptive approach to central counterparties’ risk buffers.",
    "Aligning central counterparty capital requirements with recent enhancements to the capital regime for banks is recommended.",
    "Subject: Banking; Central counterparty clearing house; Credit default swap; Currencies; Econometric analysis; Financial markets; Financial regulation and supervision; Hedging; Money; Vector autoregression",
    "Keywords: capital; Central counterparties; Central counterparty clearing house; clearing OTC-CDS; Credit default swap; Currencies; default fund; derivatives position; Europe; financial market; G-14 dealers; Global; Hedging; IM requirements; initial margin; interest rate; interest rate derivative; interest rate derivative contract; market condition; market value; meeting CM default; OTC-D market; OTC-interest rate products; overnight rate; risk buffer; Vector autoregression; WP",
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