Articles

Systemic Risk in Clearing Houses: Evidence from the European Repo Market

C. BOISSEL, F. DERRIEN, E. ORS, D. THESMAR

Journal of Financial Economics

A paraître

Départements : Finance, GREGHEC (CNRS)

Mots clés : repurchase agreement; sovereign debt crisis; LTRO; secured money market lending; clearing houses


We study how crises affect Central Clearing Counterparties (CCPs). We focus on a large and safe segment of CCP-cleared repo market during the Eurozone sovereign debt crisis. We develop a simple model to infer CCP stress, which is measured as repo rates’ sensitivity to sovereign CDS spreads and jointly captures (1) the effectiveness of haircut policies, (2) CCP-member default risk (conditional on sovereign default), and (3) CCP default risk (conditional on both sovereign and CCP-member default). During 2011, repo rates strongly respond to sovereign risk, particularly for GIIPS countries: repo investors behaved as if the conditional probability of CCP default was substantial. (100 words)


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