Banking association wants CCP reforms
14 January 2015 Washington DC
Image: Shutterstock
An association of top US banks has written to the Financial Stability Oversight Council (FSOC) urging it to take a closer look at central counterparties (CCPs).
The Clearing House Association, which is oldest banking trade group in the US, sent the letter to FSOC chairman Jack Lew in a bid to have his agency use its position as an umbrella group of US regulators to coordinate efforts to address and mitigate systemic risk arising from increasing market reliance on CCPs.
Reliance on CCPs has been a key point of reforms, with lawmakers seeing them as an important failsafe in the event of a default.
But banks and regulators from around the world have voiced concerns about CCPs’ ability to mitigate risk, arguing that an overreliance could have the opposite effect.
In its letter to the FSOC, the Clearing House Association made five recommendations that its members think would subject CCPs to more stringent standards and help to ensure that their risks are more carefully managed and mitigated.
Among the recommendations was a proposal for CCPs to have more “skin in the game”, meaning that they should be encouraged to invest more of their own capital.
The Clearing House Association also wants clearing members to have limited mutualised liability in the event of a default, greater transparency and stress testing among CCPs, and back-up plans should a CCP fail.
Regulators should also establish stronger safeguards for collateral posted by clearing members to a CCP, including standards for eligible collateral and consequent liquidity requirements.
In December 2014, LCH.Clearnet acknowledged that stress testing and transparency of results is the key to increasing confidence in CCPs.
Its whitepaper said that CCPs should have the appropriate recovery tools and margins available to deal with a clearing member default, and that a recovery plan should be developed in consultation with both clearing members and clients.
LCH.Clearnet also supports mandatory stress testing, and suggested that global coordination may be required to make this a possibility.
The Clearing House Association, which is oldest banking trade group in the US, sent the letter to FSOC chairman Jack Lew in a bid to have his agency use its position as an umbrella group of US regulators to coordinate efforts to address and mitigate systemic risk arising from increasing market reliance on CCPs.
Reliance on CCPs has been a key point of reforms, with lawmakers seeing them as an important failsafe in the event of a default.
But banks and regulators from around the world have voiced concerns about CCPs’ ability to mitigate risk, arguing that an overreliance could have the opposite effect.
In its letter to the FSOC, the Clearing House Association made five recommendations that its members think would subject CCPs to more stringent standards and help to ensure that their risks are more carefully managed and mitigated.
Among the recommendations was a proposal for CCPs to have more “skin in the game”, meaning that they should be encouraged to invest more of their own capital.
The Clearing House Association also wants clearing members to have limited mutualised liability in the event of a default, greater transparency and stress testing among CCPs, and back-up plans should a CCP fail.
Regulators should also establish stronger safeguards for collateral posted by clearing members to a CCP, including standards for eligible collateral and consequent liquidity requirements.
In December 2014, LCH.Clearnet acknowledged that stress testing and transparency of results is the key to increasing confidence in CCPs.
Its whitepaper said that CCPs should have the appropriate recovery tools and margins available to deal with a clearing member default, and that a recovery plan should be developed in consultation with both clearing members and clients.
LCH.Clearnet also supports mandatory stress testing, and suggested that global coordination may be required to make this a possibility.
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