Featured Product

    BIS on Nexus Between Banks and Central Counterparties Amid Pandemic

    May 11, 2020

    BIS published a bulletin that examines the nexus between banks and central counterparties (CCPs) amid the COVID-19 pandemic. The bulletin highlights that when thinking about margining, central banks need to assess banks and CCPs jointly rather than in isolation. In the CCP-bank nexus, actions that seem prudent from the perspective of an individual institution have the potential to strain the stability of the entire nexus through interactions. For instance, increasing margin during market stress does address increased counterparty risk. However, it can put undue pressure on clearing member banks at the wrong time.

    The COVID-19 pandemic led to market turmoil in mid-March. CCPs remained resilient, vindicating the post-crisis reforms that incentivized central clearing. The procyclicality of leverage embedded in margining models might have played a role in the events of mid-March. These margin models are critical because they underpin the management of counterparty credit risk. Margin models of some CCPs seem to have underestimated market volatility, in part because they have relied on a short period of historical price movements from tranquil times. These CCPs had to catch up and increase margins at the wrong time, squeezing liquidity when it was most needed. Going forward, the interaction of CCPs with clearing member banks is critical. Importantly, actions that might seem prudent from an individual institution’s perspective, such as increasing margins in a turmoil, might destabilize the nexus overall. Therefore, central banks and regulators need to assess banks and CCPs jointly rather than in isolation.

     

    Related Links

    Keywords: International, Banking, COVID-19, Initial Margin, Variation Margin, Procyclicality, Liquidity Risk, Counterparty Credit Risk, BIS

    Featured Experts
    Related Articles
    News

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    News

    HKMA to Increase Focus on Suptech and Regtech Cloud Adoption

    HKMA published the seventh and final issue of the Regtech Watch series, which outlines the three-year roadmap of HKMA to integrate supervisory technology, or suptech, into its processes.

    June 17, 2021 WebPage Regulatory News
    News

    EC Consults on Improving Transparency in Secondary Markets for NPLs

    EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs).

    June 16, 2021 WebPage Regulatory News
    News

    BIS and Nordic Central Banks Launch Innovation Hub in Stockholm

    BIS, Danmarks Nationalbank, Central Bank of Iceland, Norges Bank, and Sveriges Riksbank launched an Innovation Hub in Stockholm, making this the fifth BIS Innovation Hub Center to be opened in the past two years.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Tech Sprint Aims to Explore Technologies to Reach Unbanked

    FDITECH, the technology lab of FDIC, announced a tech sprint that is designed to explore new technologies and techniques that would help expand the capabilities of community banks to meet the needs of unbanked individuals and households.

    June 16, 2021 WebPage Regulatory News
    News

    EC Releases Sustainable Finance Taxonomy Compass

    EC released the EU Taxonomy Compass, which visually represents the contents of the EU Taxonomy starting with the EU Taxonomy Climate Delegated Act.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    EIOPA to Consider Liquidity Risk in Stress Test for 2021

    EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months.

    June 15, 2021 WebPage Regulatory News
    News

    ESRB Paper Discusses Measurement of Impact of Bank Failure via Lending

    The ESRB paper that presents an analytical framework that assesses and quantifies the potential impact of a bank failure on the real economy through the lending function.

    June 15, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7116