CCP’s and Too big to Fail – The tag isn’t going away

Clearing houses are posing regulators a new headache. The institutions have been at the forefront of efforts to reform the financial system since the crisis of 2007-2008. Centralising the trading of derivatives into clearing houses has reduced risks to the financial system from the failure of an individual bank, but magnified the importance of clearing houses. That, for some, has made clearing houses the new “too-big-to-fail” institutions of the post-crisis financial system.

Earlier this month, the Basel-based Financial Stability Board became the latest regulator to lay out a blueprint for how to prevent taxpayer bailouts of clearing houses.

The flurry of proposals from regulators is partly an acknowledgment that clearing houses do not fit the templates applied to “too-big-to-fail” banks following the crisis.

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