Transparency and collateral: Central versus bilateral clearing

Artikel

This paper studies the optimal clearing arrangement for bilateral financial contracts in which an assessment of counterparty credit risk is crucial for efficiency. The economy is populated by borrowers and lenders. Borrowers are subject to limited commitment and hold private information about the severity of such lack of commitment. Lenders can acquire information, at a cost, about the commitment of their borrowers, which affects the assessment of counterparty risk. Clearing through a central counterparty allows lenders to mutualize counterparty credit risk, but this insurance may weaken incentives to acquire and reveal information. If information acquisition is incentive-compatible, then lenders choose central clearing. If it is not, they may prefer bilateral clearing either to prevent strategic default or to optimize the allocation of costly collateral.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Theoretical Economics ; ISSN: 1555-7561 ; Volume: 17 ; Year: 2022 ; Issue: 1 ; Pages: 185-217 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Information and Market Efficiency; Event Studies; Insider Trading ; Financial Institutions and Services: General ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: Limited commitment ; central counterparties ; collateral

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Antinolfi, Gaetano ; Carapella, Francesca ; Carli, Francesco
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2022

Further information

• DOI: doi:10.3982/TE3893
• Handle: http://hdl.handle.net/10419/253503
• Last update: 10.03.2025, 11:41 AM CET