Central counterparties: addressing their too-important-to-fail nature

ABSTRACT Central counterparties (CCPs) can offer significant benefits to a market. However, CCPs are also highly interconnected with financial institutions and markets, and they are therefore "too important to fail". The increased volumes cleared through CCPs and their increasing global scope, in particular in the over-the-counter derivatives market, make it even more important that systemic risks related to CCPs are managed. This paper argues that the current set of international policy measures does partly address these risks, but alternative policy measures are needed to reduce the remaining systemic risks. For example, this paper recommends that network analysis be conducted by CCPs and authorities to gauge potential losses. It also suggests a common international approach to central bank services in order to help reduce the dependency of CCPs on services provided by commercial banks.