Systemic risk in clearing houses: Evidence from the European repo market
Name
Thesmar_Systemic risk in clearing housest.pdf
Description
Submitted version
Size
912.14 KB
Format
Adobe PDF
Checksum (MD5)
1b1d53940371f055dbc4b8b60540d23d
Author(s)
Boissel, Charles
Derrien, François
Ors, Evren
Thesmar, David Jean Joseph
Date Issued
September 2017
Publisher
Elsevier BV
Citation
Boissel, Charles et al. "Systemic risk in clearing houses: Evidence from the European repo market." Journal of Financial Economics 125, 3 (September 2017): 511-536 © 2017 Elsevier B.V.
Version
Original manuscript
Abstract
We study how crises affect Central Clearing Counterparties (CCPs). We focus on a large and safe segment of the 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 credit default swaps (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 Greece, Italy, Ireland, Portugal and Spain (GIIPS): Repo investors behaved as if the conditional probability of CCP default was substantial.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
http://dx.doi.org/10.1016/J.JFINECO.2017.06.010
