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The Financial System’s Resilience is Everything, But at what Cost?

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  • Friesz, Melinda

Abstract

The purpose of this study is to introduce the role of CCP in the market, the importance of the risk management framework, including the tools used in the case of insufficient guarantee funds. The study is descriptive, and besides detailing the EU-level regulatory framework, it also illustrates its possible setbacks from the perspective of the market participants and professionals. It points out that the common goal and interest of all actors are to ensure the viability of the CCP, but the poorly designed capital management and strategy can hinder this. Although the regulatory framework has been applied across Europe and its fine-tuning can be said to be constant, its effectiveness and resilience to shocks will be supported or refuted by an adverse event in the market.

Suggested Citation

  • Friesz, Melinda, 2020. "The Financial System’s Resilience is Everything, But at what Cost?," Public Finance Quarterly, Corvinus University of Budapest, vol. 65(4), pages 472-484.
    • Handle: RePEc:pfq:journl:v:65:y:2020:i:4:p:472-484
    DOI: https://doi.org/10.35551/PFQ_2020_4_2
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    References listed on IDEAS

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    1. Bruno Biais & Florian Heider & Marie Hoerova, 2012. "Clearing, Counterparty Risk, and Aggregate Risk," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(2), pages 193-222, July.
    2. Edina Berlinger & Barbara Dömötör & Ferenc Illés & Kata Váradi, 2016. "Stress Indicator for Clearing Houses," Central European Business Review, Prague University of Economics and Business, vol. 2016(4), pages 47-60.
    3. Darrell Duffie, 2015. "Resolution of Failing Central Counterparties," Book Chapters, in: Kenneth E. Scott & Thomas H. Jackson & John B. Taylor (ed.), Making Failure Feasible, chapter 4, Hoover Institution, Stanford University.
    4. Dietrich Domanski & Leonardo Gambacorta & Cristina Picillo, 2015. "Central clearing: trends and current issues," BIS Quarterly Review, Bank for International Settlements, December.
    5. Darrell Duffie & Haoxiang Zhu, 2011. "Does a Central Clearing Counterparty Reduce Counterparty Risk?," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 1(1), pages 74-95.
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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 counterparty; skin-in-the-game; recovery plan; incentives;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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