The Collateral Costs of Clearing

Cyril Monnet and Thomas Nellen

No 2014-04, Working Papers from Swiss National Bank

Abstract: In this working paper, we study the three generic clearing arrangements in the presence of two-sided limited commitment: simple bilateral clearing, segregated collateral clearing through a third party, and - most sophisticated of all - central counterparty (CCP) clearing. Clearing secures the settlement of obligations from over-the-counter (OTC) forward contracts that smooth the income of risk-averse agents. Clearing requires collateral to guarantee settlement; this is costly, as it reduces income from investment. While welfare is greater under more sophisticated clearing arrangements, we find that these are also more demanding in terms of collateral.

Keywords: clearing; central counterparty; segregation; novation; mutualization (search for similar items in EconPapers)
JEL-codes: D53 D82 G13 G14 G18 G2 G28 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Collateral Costs of Clearing (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2014-04

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