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Financial Stability Paper No 26: Assessing the adequacy of CCPs' default resources

Fergus Cumming and Joseph Noss
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Joseph Noss: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 26, Bank of England Financial Stability Papers from Bank of England

Abstract: Central counterparties (CCPs) maintain financial resources that can absorb losses in the event of their members defaulting. These include initial margin collected from members and default funds designed to absorb losses that exceed the initial margin posted by defaulting members. This paper proposes a methodology whereby daily data on a CCP’s member exposures may be used to form a ‘top-down’ statistical model of the risk arising from CCPs’ exposures to their members. In doing so, it may offer a tool with which CCPs, their members and their regulators, could assess the adequacy of CCPs’ total default resources and quantify the trade-off that occurs in the balance of resources between initial margin and default funds. It may also provide a technique to estimate the relative risk borne by clearing members on their CCP default fund contributions.

Keywords: financial regulations; central counter parties (search for similar items in EconPapers)
JEL-codes: G28 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2013-11-15
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