On 10 March 2022, the Financial Stability Board (FSB), the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements and the International Organization of Securities Commissions (IOSCO) co-published a report analysing existing financial resources and tools for central counterparty (CCP) recovery and resolution, which confirmed the need for further work on CCP financial resources.
The analysis presented in the report is based on evidence gathered on existing financial resources and tools for CCP recovery and resolution. The analysis has two components.
The first component was an assessment of the current use, composition and amount of financial resources and tools available to cover CCP default and non-default losses in a sample of 7 out of 13 CCPs that are considered systemically important in more than one jurisdiction. For default losses, all the CCP service lines were able to absorb all losses with some using recovery tools (but none needed resolution). For non-default losses, a cyber-theft scenario was considered, and resolution authorities would have needed to trigger resolution for the majority of CCPs to generate sufficient resources to cover the loss. In another non-default scenario, liquid resources and liquidity arrangements of one CCP were not sufficient.
The second component consisted of a quantitative analysis and a qualitative review of the potential financial stability implications that may result from the use of the financial resources and tools covered by the existing CPMI-IOSCO guidance on recovery of financial market infrastructures and FSB guidance on CCP resolution. The quantitative analysis showed that the use of cash calls and variation margin gains haircutting had a limited impact on bank clearing members’ liquidity and solvency. The qualitative review concluded that different recovery and resolution tools could have varying consequences in terms of knock-on effects on the wider financial system, performance risk, and impact on market and public confidence in CCPs.
The FSB has decided to continue to review the sufficiency of the existing toolkit for CCP resolution, focusing in particular on non-default loss scenarios. Further FSB work will consider the need for, and costs and benefits of potential alternative financial resources and tools for CCP resolution. This further work will start in Q2 2022 and be undertaken in cooperation with the CPMI-IOSCO. The FSB welcomes stakeholder views as input to this work by 29 April 2022. Also, the CPMI-IOSCO is currently working on CCP non-default losses in resilience and recovery. The CPMI-IOSCO remain committed to full, timely and consistent implementation of the Principles for Financial Market Infrastructures’ standards on CCP financial resources and tools for resilience and recovery, supplemented by the CPMI-IOSCO guidance on financial market infrastructure recovery. The FSB will continue to conduct and enhance the monitoring of the implementation of the FSB guidance on CCP resolution.