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Let's make it clear: how central counterparties save(d) the day

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  • Cyril Monnet

Abstract

The bankruptcy of Lehman Brothers in 2008 will certainly be featured in history books as one of the greatest financial failures so far, but it will also be recorded as yet another episode of the historically successful performance of clearing arrangements in ensuring the resiliency of markets. Recognizing the usefulness of safe and sound clearing and settlement procedures, the Federal Reserve has recently supported the attempt to shift the clearing of some contracts to a central counterparty. In this article, Cyril Monnet outlines the arguments in favor of central counterparty clearing, the economic rationale for trade clearing through a central counterparty, and some possible limits to the advantages of clearing trades through a central counterparty.

Suggested Citation

  • Cyril Monnet, 2010. "Let's make it clear: how central counterparties save(d) the day," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 1-10.
    • Handle: RePEc:fip:fedpbr:y:2010:i:q1:p:1-10
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/2010/q1/brq110_central-counterparties.pdf
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    References listed on IDEAS

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    4. James T. Moser, 1998. "Contracting innovations and the evolution of clearing and settlement methods at futures exchanges," Working Paper Series WP-98-26, Federal Reserve Bank of Chicago.
    5. Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-151.
    6. Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2012. "Optimal clearing arrangements for financial trades," Journal of Financial Economics, Elsevier, vol. 103(1), pages 189-203.
    7. Randall S. Kroszner, 1999. "Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearing Houses and Recent Over-the Counter Innovations," CRSP working papers 493, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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    Cited by:

    1. Li, Fuchun & Perez-Saiz, Hector, 2018. "Measuring systemic risk across financial market infrastructures," Journal of Financial Stability, Elsevier, vol. 34(C), pages 1-11.

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