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

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS and FSB Set Out Recommendations for Benchmark Transition

    BCBS and FSB published a report on supervisory issues associated with benchmark transition.

    July 09, 2020 WebPage Regulatory News
    News

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.

    July 09, 2020 WebPage Regulatory News
    News

    ESMA Updates Reporting Manual on European Single Electronic Format

    ESMA updated the reporting manual on the European Single Electronic Format (ESEF).

    July 09, 2020 WebPage Regulatory News
    News

    EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis

    EBA published a statement on resolution planning in light of the COVID-19 pandemic.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    July 08, 2020 WebPage Regulatory News
    News

    ECB Guideline on Materiality Threshold for Credit Obligations Past Due

    ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.

    July 08, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act

    FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.

    July 08, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5458