On 26 February 2020, the European Central Bank (ECB) published the introductory remarks by Fabio Panetta (ECB Executive Board Member) at the Second Joint Bundesbank/ECB/Federal Reserve Bank of Chicago Conference on CCP Risk Management.
Key points in the speech include:
- given the significant use of the euro by globally active central counterparties (CCPs), robust arrangements for cross-border cooperation among authorities are an overarching ECB priority with a view to ensuring central clearing robustness. Significant progress was made in Europe last year with the adoption of a new supervisory framework for CCPs in the revised European Market Infrastructure Regulation (EMIR 2);
- at the global level, however, cooperation is not yet at the level it should be. For instance, the Financial Stability Board previously highlighted that no credible resolution plans are currently in place for any of the 13 major CCPs that are systemically relevant in more than one jurisdiction;
- cross-border cooperation among authorities is not enough. It needs to be complemented by coordination within the central clearing community – between banks, CCPs and their respective authorities;
- diverging interests of banks and CCPs in CCP risk mitigation were underlined in the recent debate on CCP recovery and resolution;
- there are knowledge gaps. For example, the interaction of prudential requirements for banks and CCPs has not yet been sufficiently thought through. In particular, though banks may potentially face very large payment obligations in a CCP recovery or resolution event – as a result of, say, cash calls, potential haircuts of variation margin gains or tear-ups – they are currently not required to hold any capital against them;
- there needs to be improvements to the institutional setting for information sharing and coordination among CCPs, banks and public authorities. On the public sector side, banking supervisors need to be more frequently included in the regulatory dialogue between securities regulators and central banks;
- as for individual CCPs, there is a need to move beyond the purely administrative preparation of cooperation in stress events. There is also a need to consider concrete information needs and responsibilities in the event of a CCP crisis. Periodic crisis simulation exercises should be organised to test and advance understanding. The ECB sees this as a short-term priority for CCP crisis management groups that should be pursued in parallel to developing resolution plans; and
- the ECB sees significant benefits in a private sector-led standing forum for dialogue between the main industry associations of CCPs and banks. The ECB stands ready to help facilitate the launch of such an initiative. Besides focusing on governance, disclosure practices and client clearing arrangements in CCPs, such a horizontal forum could also work towards cross-fertilising approaches to developing stress scenarios that go beyond extreme but plausible events.