Journal of Financial Market Infrastructures

Central counterparties and banks: vive la difference

Mark Jozsef Manning and David Hughes

  • Banks and CCPs may affect systemic stability in different ways.
  • A CCP's systemic importance is derived from that of its participants.
  • A CCP's systemic importance reflects its central role and lack of substitutability.
  • Regulatory frameworks for banks and CCPs need to reflect their differences.


Since the global financial crisis, central counterparties (CCPs) have assumed an increasingly prominent role in the financial system. While regulatory standards for CCPs have been strengthened in recent years, there remains considerable debate in both industry and policy circles as to whether they are adequate to promote resilience. In this debate, experience has often been drawn from bank regulation. To help ground the debate, this paper draws out the essential differences between CCPs and banks, comparing indicators of systemic importance and considering implications for the regulatory approach. It argues that banks and CCPs may affect systemic stability in different ways, with a CCP's systemic importance derived from that of its participants. While size is an important indicator of a bank's systemic importance, a CCP's central role in the financial network and its typical lack of substitutability are likely to be more important. The paper demonstrates that, while continuous review and challenge is important, any refinements to regulatory standards for CCPs to reflect lessons drawn from bank regulation should not overlook these differences.

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