Fed official slams ‘fantasy’ of CCP default management
Banks have to send staff to help hedge and then auction a defaulting member’s portfolio. But Chicago Fed official says they lack the resources, and banks share those concerns
An official at the Federal Reserve Bank of Chicago has described as "fantasy" the idea that clearing house procedures for a default can work as the number of central counterparties (CCPs) in the over-the-counter market increases. The default management process relies on traders who are seconded from surviving bank members.
"Five years from now, someone besides me will realise the default management process for cleared OTC derivatives begins to fall down as the number of OTC CCPs derivatives
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