General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
March 20, 2018

IMF published a working paper that proposes alternative policy suggestions for central counterparty (CCP) resolution. The paper analyzes current resolution tools in the context of policy, which is to restore the critical functions of a failed CCP, and concludes that the toolkit is insufficient to avoid the costs of resolution being borne by taxpayers.

This paper begins by outlining the role, structure, and economics of CCPs. It then describes the function of CCPs and reviews the need for, and content of, recovery and resolution regimes for CCPs. It also assesses the toolkit for resolution of CCPs—that is, the options available when own recovery efforts of a CCP have not succeeded. The paper shows that the classic approach to resolving a bank has little chance of success with a CCP and that the other tools, which are ostensibly for resolution, are effectively forms of recovery. Next, the paper examines the policy thinking behind current proposals and specific resolution tools. It draws conclusions about what would be left in the toolkit, if various efforts at recovery (regardless of how they are categorized in the confused taxonomy applicable to troubled CCPs) fail. Finally, the paper proposes new tools to address this issue and these tools entail:

  • Relaxing the clearing obligation
  • Widening sources of capital and building reserves
  • Scrutinizing failed CCPs to benefit from lessons learned

The paper concludes that many of the tools proposed for resolving CCPs might prove to be unusable in a crisis or even worsen the crisis. Additional tools are needed; some of those would demand that regulators accept that the existing policy belief—in particular, that mandatory clearing must carry on under all circumstances—may not hold valid in a crisis. The draft EU Regulation on this is a valiant legislative attempt to lay more detail around FSB’s outline paper on CCP resolution. The CPMI-IOSCO and FSB should modify their recommendations to dispel the assumption by lawmakers that a resolution model that works for banks will be suitable for CCPs. It is not too late for action to improve policy on failing CCPs.


Related Link: Working Paper (PDF)

Keywords: International, Securities, CCP Resolution, Policy Proposals, Recovery and Resolution, IMF

Related Insights

US Agencies Propose Revisions to FFIEC Reports 031, 041, 051, and 101

US Agencies (FDIC, FED, and OCC) propose to extend for three years, with revision, FFIEC 031, FFIEC 041, FFIEC 051, and FFIEC 101.

February 21, 2019 WebPage Regulatory News

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News

PRA Publishes PS4/19 on Loss-Absorbency Mechanism Under Solvency II

PRA published a policy statement (PS4/19) that provides feedback on responses to the consultation paper (CP27/18) on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down under Solvency II.

February 20, 2019 WebPage Regulatory News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News

BIS Paper on Effect of Securities Lending on OTC Market Liquidity

BIS published a working paper that studies how securities lending affects over-the-counter market (OTC) liquidity.

February 19, 2019 WebPage Regulatory News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2623