Financial Stability Board sets out plans to minimise “too-big-to-fail” clearing house risk
The Financial Stability Board (FSB) has set out proposals for new rules around “living wills” for clearing houses to ensure they do not become a new source of “too-big-to-fail risk”.
The blueprint, published today, is designed to ensure that collapsing clearing houses, or CCPs, do not cause further damage to the financial system and are not the subject of taxpayer bail-outs.
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Clearing houses, which sit between two sides of financial trades and ensure deals are completed if one side defaults, have grown in recent years, with new clearing rules introduced since the financial crisis.
The FSB, an international body whose current chair is Mark Carney, today set out how regulators should be able to close failing clearing houses.
“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.
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“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.”
The FSB said it will undertake further work to ensure financial resources are in place for resolution and will decide next year whether more guidance is needed on the issue.