The Financial Stability Board (FSB) has released a blueprint designed to ensure that clearing houses do not cause damage to the financial system if they collapse.
The paper also sets out ways to make sure that central counterparties (CCPs) are not the subject of taxpayer bailouts and ensure they do not become a new source of “too big to fail risk”.
CCPs sit between two sides of financial trades and ensure deals are completed even if one side defaults.
The use of CCPs has grown in recent years – they are popular with securities lending transactions, for instance – with new clearing rules having been introduced since the financial crisis.
The FSB, chaired by Bank of England governor Mark Carney, set out how regulators should be able to close failing CCPs.
“CCPs are an integral part of the financial system and play an important role in mitigating risks to the financial system. They have grown substantially over the last years,” said Elke Konig, chair of the FSB resolution steering group and European single resolution board.
“The failure of a CCP would have a significant impact on financial stability. It is essential that authorities have effective resolution planning arrangements in place, including legal powers and tools to take action in a crisis,” he added.
©2017 funds europe
