BIS Quarterly Review:Liquid assets at CCPs and systemic liquidity risks

04 December 2023

Central counterparties (CCPs) are key players in financial markets, holding $1.3 trillion in liquid assets as of June 2023. The holdings are highly concentrated in the eight largest CCPs, mainly based in Europe and the United States.

Most of these liquid assets are "cash" – ie deposits at central banks, reverse repos and unsecured bank deposits – and government bonds, which CCPs receive as collateral for the transactions they clear. This collateral improves systemic resilience by shielding CCPs from counterparty risk. But it also imposes liquidity demands on market participants that, occasionally, could worsen financial stress during flight-to-safety episodes or lead to destabilising margin spirals. The dual role of government bonds as both collateral and underlying assets for CCP-cleared derivatives introduces "wrong-way" risk that can exacerbate these spirals....

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