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Does a central clearing counterparty reduce liquidity needs?

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Title: Does a central clearing counterparty reduce liquidity needs?
Authors: Hayakawa, Hitoshi Browse this author
Issue Date: Apr-2018
Publisher: Springer
Journal Title: Journal of economic interaction and coordination
Volume: 13
Issue: 1
Start Page: 9
End Page: 50
Publisher DOI: 10.1007/s11403-017-0208-1
Abstract: This study investigates whether and how central clearing influences the overall liquidity needs in a network of financial obligations. Utilizing the approach of flow network theory, we show that the effect of adding a central clearing counterparty (CCP) is decomposed into two effects: central routing, and central netting effects. Each effect can produce different liquidity needs according to different liquidity scenarios. The analysis indicates that adding a CCP in times of financial distress successfully reduces the overall liquidity needs if and only if the netting efficiency of the CCP is sufficiently high. Furthermore, once the economy is no longer in financial distress, higher netting efficiency of the CCP could conversely increase the overall liquidity needs. The results have implications for the effectiveness of CCPs in mitigating systemic risk in times of financial distress, and their operating costs once the distress has passed.
Rights: © 2017 Hitoshi Hayakawa.
Type: article
Appears in Collections:創成研究機構 (Creative Research Institution) > 雑誌発表論文等 (Peer-reviewed Journal Articles, etc)

Submitter: 早川 仁

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