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Limiting Taxpayer "Puts" - An Example from Central Counterparties

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  • Mr. Manmohan Singh

Abstract

Nonbanks such as central counterparties (CCPs) are a useful lens to see how regulators view the role of the lender-of-last-resort (LOLR). This paper explores the avenues available when a nonbank failure is likely, specifically by considering the options of keeping CCPs afloat. It is argued that CCPs have, by regulatory fiat, become “too important to fail,” and thus the imperative should be greater loss-sharing by all participants that better align the distribution of risks and rewards of CCPs, the clearing members and derivative end-users. In the context of LOLR, the proposed variation margin gains haircut (VMGH) is discussed as a way of limiting the taxpayer put.

Suggested Citation

  • Mr. Manmohan Singh, 2014. "Limiting Taxpayer "Puts" - An Example from Central Counterparties," IMF Working Papers 2014/203, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/203
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    References listed on IDEAS

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    1. Kimberly Ann Summe, 2012. "An Examination of Lehman Brothers' Derivatives Portfolio Postbankruptcy - Would Dodd-Frank Have Made a Difference?," Book Chapters, in: Kenneth E. Scott & John B. Taylor (ed.), Bankruptcy Not Bailout, chapter 4, Hoover Institution, Stanford University.
    2. Mr. Manmohan Singh, 2010. "Collateral, Netting and Systemic Risk in the OTC Derivatives Market," IMF Working Papers 2010/099, International Monetary Fund.
    3. Matt Gibson, 2013. "Recovery and Resolution of Central Counterparties," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 39-48, December.
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    Cited by:

    1. Wenqian Huang & Előd Takáts, 2020. "Model risk at central counterparties: Is skin-in-the-game a game changer?," BIS Working Papers 866, Bank for International Settlements.
    2. Jorge Cruz Lopez & Mark Manning, 2017. "Who Pays? CCP Resource Provision in the Post-Pittsburgh World," Discussion Papers 17-17, Bank of Canada.

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