Journal Article

Let's make it clear: how central counterparties save(d) the day

Abstract: The bankruptcy of Lehman Brothers in 2008 will certainly be featured in history books as one of the greatest financial failures so far, but it will also be recorded as yet another episode of the historically successful performance of clearing arrangements in ensuring the resiliency of markets. Recognizing the usefulness of safe and sound clearing and settlement procedures, the Federal Reserve has recently supported the attempt to shift the clearing of some contracts to a central counterparty. In this article, Cyril Monnet outlines the arguments in favor of central counterparty clearing, the economic rationale for trade clearing through a central counterparty, and some possible limits to the advantages of clearing trades through a central counterparty.

Keywords: Risk; Bankruptcy;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Business Review

Publication Date: 2010

Issue: Q1

Pages: 1-10