Arbeitspapier

The Limits of Central Counterparty Clearing: Collusive Moral Hazard and Market Liquidity

Can central counterparty (CCP) clearing control counterparty risk in the presence of risk taking that can aggravate such risk? When counterparty risk is not observable, I show that central clearing leads to higher collateral requirements for two different reasons. Without collusion about risk taking, a CCP offering diversification of risk cannot selectively forgo incentives for transactions that use collateral only for insurance. With collusion about risk taking, a CCP needs to charge collateral in line with the worst counterparty quality to control risk taking. Requiring more collateral reduces market liquidity and worsens incentives causing a feedback effect that amplifies collateral costs.

Sprache
Englisch

Erschienen in
Series: Queen's Economics Department Working Paper ; No. 1312

Klassifikation
Wirtschaft
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Corporate Finance and Governance: Government Policy and Regulation
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Thema
CCP Clearing
Counterparty Risk
Moral Hazard
Collateral
Market Liquidity

Ereignis
Geistige Schöpfung
(wer)
Koeppl, Thorsten V.
Ereignis
Veröffentlichung
(wer)
Queen's University, Department of Economics
(wo)
Kingston (Ontario)
(wann)
2013

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Koeppl, Thorsten V.
  • Queen's University, Department of Economics

Entstanden

  • 2013

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