Framework for Estinating Financial Needs in the Resolution of Central Counterparties

Bárbara Gullón Ojesto María José Gómez Yubero

CNMV Working Papers from CNMV- Spanish Securities Markets Commission - Research and Statistics Department

Abstract: This paper presents a methodological framework for estimating the potential costs associated with the resolution of central counterparties (CCPs), in line with Step 3 of the Guidance on Financial Resources to Support CCP Resolution and on the Treatment of CCP Equity in Resolution issued by the Financial Stability Board (FSB) (FSB, 2024b). It distinguises between losses to be absorbed under different scenarios - whether due to default (DL) on non-default (NDL) events - and additional costs arising from the execution of the resolution process. Different methodological approaches are proposed for quantifying each cost category during the resolution planning phase, including the use of actual portfolios, hypothetical data, reverse stress testing, market bechmarks, internal simulations, budgetary analysis, and legal cirteria. Additionally, cost-sharing and cost recovery mechanisms are addressed, and the No Creditor Worse Off than in Liquidation (NCWOL) principle is analysed due to its legal and financial relevance. The paper concludes with proposals aimed at strengthening robustness, comparability, and pratical apllicability of cost estnimations, with particular attention to NDS scenarios, internal model validation, and international harmonisation. Finally, it invites a strategic reflection on the potential convergence betweeen bank resolution framework and those applicable to financial market infrastructures, in support of financial stability.

Keywords: CCP resolution; degault losses (DL); non-default losses (NDL); common costs; NCWOL; cost estimation; resolutioon funding; financial stability (search for similar items in EconPapers)
JEL-codes: G11 G18 G20 (search for similar items in EconPapers)
Date: 2025
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