The Failure of a Clearinghouse:Empirical Evidence

Vincent Bignon and G. Vuillemey

Working papers from Banque de France

Abstract: We provide the first detailed empirical analysis of the failure of a derivatives clearinghouse: the Caisse de Liquidation, which defaulted in Paris in 1974. Using archival data, we find three main causes of the failure: (i) a weak pool of investors, (ii) the inability to contain the growth of a large member position, and (iii) risk-shifting decisions by the clearinghouse. Risk-shifting incentives aligned the clearinghouse s interests with those of the defaulting member, induced delays in the liquidation of the defaulted position, and led private renegotiation attempts to fail. Our results have implications for the design of clearing institutions.

Keywords: Derivatives; central clearing; central counterparties. (search for similar items in EconPapers)
JEL-codes: G23 G28 N24 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2017
New Economics Papers: this item is included in nep-his and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Failure of a Clearinghouse: Empirical Evidence* (2020)
Working Paper: The Failure of a Clearinghouse: Empirical Evidence (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:638

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