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Central Counterparties: Addressing their Too Important to Fail Nature

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  • Ms. Froukelien Wendt

Abstract

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.

Suggested Citation

  • Ms. Froukelien Wendt, 2015. "Central Counterparties: Addressing their Too Important to Fail Nature," IMF Working Papers 2015/021, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/021
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    References listed on IDEAS

    as
    1. Elliott, David, 2013. "Financial Stability Paper No 20: Central counterparty loss-allocation rules," Bank of England Financial Stability Papers 20, Bank of England.
    2. Murphy, David & Vasios, Michalis & Vause, Nick, 2014. "Financial Stability Paper No 29: An investigation into the procyclicality of risk-based initial margin models," Bank of England Financial Stability Papers 29, Bank of England.
    3. Mr. Nicolas Arregui & Mr. Mohamed Norat & Antonio Pancorbo & Ms. Jodi G Scarlata & Eija Holttinen & Fabiana Melo & Jay Surti & Christopher Wilson & Rodolfo Wehrhahn & Mamoru Yanase, 2013. "Addressing Interconnectedness: Concepts and Prudential Tools," IMF Working Papers 2013/199, International Monetary Fund.
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    Citations

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    Cited by:

    1. Jaremski, Matthew, 2018. "The (dis)advantages of clearinghouses before the Fed," Journal of Financial Economics, Elsevier, vol. 127(3), pages 435-458.
    2. Mr. Marc C Dobler & Mr. Simon T Gray & Diarmuid Murphy & Bozena Radzewicz-Bak, 2016. "The Lender of Last Resort Function after the Global Financial Crisis," IMF Working Papers 2016/010, International Monetary Fund.
    3. Angela Armakolla & Benedetta Bianchi, 2017. "The European central counterparty (CCP) ecosystem," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Data needs and Statistics compilation for macroprudential analysis, volume 46, Bank for International Settlements.
    4. Berndsen, Ron, 2020. "Five Fundamental Questions on Central Counterparties," Other publications TiSEM 1f3bd844-92ab-4104-8f57-9, Tilburg University, School of Economics and Management.
    5. Corradin, Stefano & Heider, Florian & Hoerova, Marie, 2017. "On collateral: implications for financial stability and monetary policy," Working Paper Series 2107, European Central Bank.
    6. Ramiro Losada & Ricardo Laborda, 2020. "Non-alternative collective investment schemes, connectedness and systemic risk," CNMV Working Papers CNMV Working Papers no. 7, CNMV- Spanish Securities Markets Commission - Research and Statistics Department.
    7. Ricardo Mariño-Martínez & Carlos León & Carlos Cadena-Silva, 2020. "Las entidades de contrapartida central en la mitigación del riesgo de contraparte y de liquidez: El caso de los derivados cambiarios en Colombia," Borradores de Economia 1101, Banco de la Republica de Colombia.
    8. Heijmans, Ronald & Wendt, Froukelien, 2023. "Measuring the impact of a failing participant in payment systems," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(4).
    9. Grothe, Magdalena & Pancost, N. Aaron & Tompaidis, Stathis, 2023. "Collateral competition: Evidence from central counterparties," Journal of Financial Economics, Elsevier, vol. 149(3), pages 536-556.
    10. Ron Berndsen, 2021. "Fundamental questions on central counterparties: A review of the literature," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(12), pages 2009-2022, December.
    11. Heath, Alexandra & Kelly, Gerard & Manning, Mark & Markose, Sheri & Shaghaghi, Ali Rais, 2016. "CCPs and network stability in OTC derivatives markets," Journal of Financial Stability, Elsevier, vol. 27(C), pages 217-233.
    12. Dietrich Domanski & Leonardo Gambacorta & Cristina Picillo, 2015. "Central clearing: trends and current issues," BIS Quarterly Review, Bank for International Settlements, December.
    13. Mr. Manmohan Singh & Dermot Turing, 2018. "Central Counterparties Resolution—An Unresolved Problem," IMF Working Papers 2018/065, International Monetary Fund.
    14. Ramiro Losada & Ricardo Laborda, 2020. "La interconexión en las instituciones de inversión colectiva no alternativas y el riesgo sistémico," CNMV Documentos de Trabajo CNMV Documentos de Trabaj, CNMV- Comisión Nacional del Mercado de Valores - Departamento de Estudios y Estadísticas.

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