CCP
WHAT IS THIS? A central counterparty (CCP) manages default risk by collecting initial and variation margin from both parties to a trade. Spill-over losses are absorbed via a default fund to which all members contribute – introducing a degree of mutualised risk – and by the CCP’s own capital. The concept is an old one that was extended to over-the-counter derivatives in the aftermath of the financial crisis.
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Till def(ault) do us part: reassessing counterparty risk between global systemically important banks and central counterparties
The authors investigate how far liquidity at G-SIBs may be available to CCPs prior to a G-SIB resolution beginning and before a forced closeout is necessary, allowing the G-SIB to continue trading with a CCP until a payment default occurs.
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Large banks safer for CCPs than they get credit for
Plentiful pre-positioned liquidity softens the blow of resolution, new research argues