On 19 September 2023, the Financial Stability Board (FSB) published a consultation report on financial resources and tools for central counterparty (CCP) resolution.

In the consultation report the FSB sets out a proposal for a toolbox approach as a global standard for CCP financial resources and tools for resolution. In a toolbox approach, resolution authorities would have access to a combination of resources and tools from the toolbox as options to use in resolution. The resolution toolbox comprises (i) a set of resolution-specific resources and tools available for resolution and (ii) if available, financial resources from access to non-exhausted recovery tools.

Seven financial resources and tools for CCP resolution have been identified:

• Bail-in bonds – subordinated debt or unsecured debt ranking junior to other liabilities issued by a CCP (or its parent) to recapitalise the CCP (through conversion into equity) and/or absorb losses in resolution. A CCP would issue bail-in debt in business-as-usual periods for use in a potential resolution scenario.
• Resolution funds – dedicated pre-funded resources, which can be called upon in resolution by a participating resolution authority in the fund and can vary in scope and membership.
• Resolution-specific insurance – a contract in which an insurer agrees to provide to the resolution authority or the CCP coverage for specified risks so that financial resources are available in a resolution of a CCP.
• Resolution-specific third-party contractual support (e.g., letters of credit, performance bonds, advance payment guarantees, or intra-group financial support) – contingent resources provided by a third party (which in some cases could be the parent or affiliate of the CCP) available to the resolution authority.
• Resolution cash calls – contractual or statutory provisions that enable the resolution authority to make one or more cash calls on the clearing participants up to a predetermined amount of funds once the CCP is placed in resolution.
• Statutory or contractual variation margin gains haircutting (VMGH) for resolution – a means for specifying that the resolution authority has an independent (de novo) right to delay, reduce, or cancel variation margin payments in resolution.
• Equity write-down – a resolution authority’s power to use existing CCP owners’ equity in the CCP to absorb losses in a first loss position in resolution.

The FSB invites comments on the consultation report and associated questions, including supporting evidence where available. The deadline for responses is 20 November 2023.