CCPs must be able to haircut initial margin in a crisis

Initial margin is the best source of liquidity for CCPs in a crisis, argues Irish central banker

Haircut fringe
Radical haircut: initial margin haircutting is a controversial topic

Giuseppe Insalaco is a senior adviser in the markets policy division at the Central Bank of Ireland

Although the European Commission has not yet published its proposed recovery and resolution legislation for central counterparties (CCPs), the debate on the subject is already raging.

That's particularly the case when it comes to haircutting initial margin, by which I mean dipping into initial margin accounts to cover liquidity requirements or even losses incurred by a CCP in distress.

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