CCP fire drills lack real-world punch, banks say

Cross-membership means current tests do not reflect a real default

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Fire drills conducted by central counterparties (CCPs) do not reflect the conditions of a real default scenario, dealers claim, since they are run by clearing houses on an individual basis when banks are often members of multiple CCPs.

While LCH.Clearnet was the only major CCP clearing swaps in 2008 when Lehman Brothers defaulted, market participants can now clear over-the-counter derivatives at CME Group, Eurex, Ice or a number of regional clearing services, such as those in Brazil, Hong Kong,

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