Fabio Panetta: Central clearing in turbulent times - frontiers in regulation and oversight

Keynote speech by Mr Fabio Panetta, Member of the Executive Board of the European Central Bank, at the Fifth Joint Deutsche Bundesbank, European Central Bank and Federal Reserve Bank of Chicago Conference on CCP Risk Management, Frankfurt am Main, 22 June 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

The agreement by the G20 in 2009 to make central clearing mandatory was a significant milestone on the path to enhancing counterparty credit risk management.

In the years that followed, a series of regulatory and supervisory measures were introduced to ensure that the concentration of risks in central counterparties (CCPs) would be addressed through adequate risk management practices.

In the current context of elevated economic and financial uncertainty, CCPs must adapt their risk management strategies. Public authorities, meanwhile, must consider how they can best adjust the regulatory and oversight framework for CCPs.

In my remarks today, I will highlight three areas that require progress to preserve the pivotal role of CCPs in safeguarding stability. I will discuss challenges in cross-border supervision, the need to be better prepared for extreme stress events and further actions to limit margin procyclicality.

Challenges in cross-border supervision

Let me start with challenges in cross-border supervision.

Arrangements for cross-border supervision need to be commensurate with the cross-border systemic risk implications of central clearing. This is particularly true in extreme scenarios in which a CCP has exhausted its prefunded financial buffers. In these circumstances, allocating losses on an ad hoc basis could exacerbate credit and liquidity strains for clearing participants, which are often located across several jurisdictions.

The ECB therefore supports the European Commission's proposal to enhance EU-level CCP supervision. Given the increasing importance and complexity of EU CCPs, as well as their interconnectedness with significant credit institutions that are clearing members, enhancing the supervision of central clearing at EU level is necessary.