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Empirical analysis of collateral at central counterparties

Magdalena Grothe, N. Aaron Pancost and Stathis Tompaidis

No 131, ESRB Working Paper Series from European Systemic Risk Board

Abstract: This paper studies the risk management of central counterparties (CCPs) using a granular transaction-level dataset. We test whether margining practices are sufficient relative to portfolio risk and whether CCPs reduce margin requirements in a ‟race-to-the-bottom.” We find that, for some CCPs, margin breaches are predictable ex ante, but the portfolios of more interconnected clearing members are associated with higher margin holdings. While margin requirements increased significantly around the onset of the Covid-19 pandemic, controlling for portfolio and macro-financial variables, margin breaches did not. Our results indicate that changes in margins should be analyzed alongside margin breaches. JEL Classification: G23, G21, G15

Keywords: CCP; initial margin; risk management; variation margin (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-rmg
Note: 1601201
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