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05 June 2018

Bank of England's Jon Cunliffe: Central Clearing and Resolution – learning some of the lessons of Lehmans

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The BoE's Deputy Governor in Financial Stability addresses the progress that has been made to reform derivatives’ markets, and explains how the concentration of counterparty risk in central counterparties is managed and why we need to have a resolution regime for CCPs.

Mr Cunliffe sets out why resolution for CCPs requires a very different approach to resolution for banks.  The event that would require it would be “further into the tail of the probability distribution of bad events” than we require banks to withstand.  But, as Sir Jon notes, “the crisis has taught us that we do need to think about such events” and he sets out the objectives for a CCP resolution regime.

He also reflects on the development of the UK’s bank resolution regime – the process by which the Bank of England can step in to make sure that a bank that is failing does so in an orderly way – and why the effective and orderly resolution of a large bank is critical to the resilience of CCPs. With much of the policy on bank resolution now finalised, the Bank is increasingly focusing on implementation of the framework to make banks resolvable.

Jon Cunliffe adds that ‘for resolution to have maximum efficacy banks not only need to be able to meet the policy standards and have sufficient loss absorbing capacity. They need also to have the capabilities to be ready to implement a resolution.’

Full speech

© Bank of England

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