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Central Counterparties Help, But Do Not Assure Financial Stability

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Listed:
  • Lopez, Claude
  • Saeidinezhad, Elham

Abstract

Key Observations: 1. Central counterparties (CCPs) provide derivative markets with benefits of multilateral netting and better collateralization, assurances of trade finality and settlement, and help bolster the market integrity. 2. Strengthening CCPs is a necessary but hardly sufficient condition to ensure financial system stability. Macroprudential policy should supplement the work of CCPs with attentive monitoring and rapid resolution procedures: - Market liquidity conditions must be monitored vigilantly to ensure effective price discovery and market continuity. Regulators and supervisors must stand ready to support illiquid financial intermediaries if CCPs and markets threaten to seize. - A fast and certain recovery and resolution procedure of a failed CCP is essential. It would facilitate the CCP’s recapitalization and its ability to resume its function within the financial system.

Suggested Citation

  • Lopez, Claude & Saeidinezhad, Elham, 2017. "Central Counterparties Help, But Do Not Assure Financial Stability," MPRA Paper 80358, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80358
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    File URL: https://mpra.ub.uni-muenchen.de/80358/1/MPRA_paper_80358.pdf
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    References listed on IDEAS

    as
    1. Robert Cox & Robert Steigerwald, 2017. "A CCP Is a CCP Is a CCP," Policy Discussion Paper Series 93561, Federal Reserve Bank of Chicago.
    2. Office of Financial Research (ed.), . "New Public Disclosures Shed Light on Central Counterparties," Viewpoint Papers, Office of Financial Research, US Department of the Treasury, number 17-02.
    3. Yang-Ho Park & Nicole Abruzzo, 2016. "An Empirical Analysis of Futures Margin Changes: Determinants and Policy Implications," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 65-100, February.
    4. Dietrich Domanski & Leonardo Gambacorta & Cristina Picillo, 2015. "Central clearing: trends and current issues," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. Melinda Friesz & Kira Muratov-Szabó & Andrea Prepuk & Kata Váradi, 2021. "Risk Mutualization in Central Clearing: An Answer to the Cross-Guarantee Phenomenon from the Financial Stability Viewpoint," Risks, MDPI, vol. 9(8), pages 1-19, August.

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    More about this item

    Keywords

    Central counterparties; macroprudential; systemic risk; fiancial stability;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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