Featured Product

    IMF Releases Working Paper Offering Policy Proposals on CCP Resolution

    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 Articles
    News

    FSI Paper Examines Use of Suptech Initiatives by Financial Authorities

    The Financial Stability Institute (FSI) of BIS published a paper that examines the suptech developments by analyzing suptech initiatives of 39 financial authorities globally.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Consult on Policy Statement on Allowance for Credit Losses

    US Agencies (FDIC, FED, NCUA, and OCC) are consulting on the policy statement on allowances for credit losses and on the guidance on credit risk review systems.

    October 17, 2019 WebPage Regulatory News
    News

    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk.

    October 17, 2019 WebPage Regulatory News
    News

    FSB Report Examines Implementation and Impact of G20 Financial Reforms

    FSB published fifth annual report on the implementation and effects of the G20 financial regulatory reforms.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Launches Consultation on Comprehensive Pillar 3 Disclosures

    EBA proposed the new comprehensive implementing technical standard (ITS) for public disclosures by financial institutions.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Consults on Revised Technical Standards on Supervisory Reporting

    EBA launched a consultation on the revised implementing technical standards, or ITS, on supervisory reporting.

    October 16, 2019 WebPage Regulatory News
    News

    BoE and FCA Examine Use of Machine Learning in Financial Sector in UK

    BoE and FCA published a report on the results of a joint survey by BoE and FCA in 2019 to better understand the use of machine learning in the financial services sector in UK.

    October 16, 2019 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel Framework

    BCBS published the seventeenth progress report on adoption of Basel regulatory framework.

    October 16, 2019 WebPage Regulatory News
    News

    APRA Proposes Measures to Strengthen Capital for Bank Depositors

    APRA proposed changes to APS 111, which is the prudential standard on measuring capital adequacy and establishes the criteria for regulatory capital requirements of authorized deposit-taking institutions.

    October 15, 2019 WebPage Regulatory News
    News

    EIOPA Consults on Technical Advice for the 2020 Review of Solvency II

    EIOPA is consulting on an opinion that sets out technical advice for the 2020 review of Solvency II.

    October 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3981