Journal of Financial Market Infrastructures

Measuring system-wide resilience of central counterparties

Stathis Tompaidis

  • This paper introduces a framework for a system-wide stress test for central counterparties.
  • There are alternatives to the assumptions underlying current system-wide stress tests.
  • The collaboration of CCP supervisors can lead to a system-wide stress test.
  • Using many stress scenarios has many benefits without additional costs.

Central clearing has the potential to improve transparency and risk management across
the financial system. It also creates new dependencies between firms. Stress tests are
now a common tool used by central counterparties (CCPs) to evaluate their resilience
in the face of losses caused by the default of their clearing members. Determining the
resiliency of the entire system of CCPs and clearing members, however, requires a
combined supervisory stress test across both CCPs and their clearing members. We
propose a framework for extending existing stress test results obtained at individual
CCPs to create a system-wide stress test.

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