With CCPs being an increasingly important part of the financial system through their ability to mitigate and manage counterparty credit risk, particularly following post-crisis reforms to mandate central clearing of certain standardised over-the-counter derivatives, it is vital that CCPs do not themselves become a new source of too-big-to-fail risk.
The FSB Key Attributes of Effective Resolution Regimes for Financial Institutions and implementation guidance on financial market infrastructure resolution set out a framework for FMI resolution. This framework states the objectives of FMI resolution and a range of powers and tools that should be made available to resolution authorities to resolve a failing FMI.
However, while the Key Attributes and existing guidance describe a number of tools that should be available to authorities, they do not discuss how those tools could be used or combined to develop strategies for the effective resolution of CCPs. In some areas, further guidance may be required to assist jurisdictions with implementing effective resolution regimes and to assist resolution authorities with developing credible resolution strategies and plans.
The discussion note covers a number of aspects of CCP resolution planning, including timing of entry into resolution; adequacy of financial resources; tools for returning to a matched book and allocating default and non-default losses; application of the No Creditor Worse Off safeguard and treatment of the CCP’s equity in resolution; and cross-border cooperation and effectiveness of resolution actions. The note also sets out related questions on which the FSB seeks comment.
Responses to the discussion note should be sent by 17 October.
Full Discussion note
© FSB - Financial Stability Board
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