Lower margin can fuel procyclicality in CCPs – research
Efforts to prevent ‘margin spiral’ during stress could encourage more risk-taking, paper argues
Margin calls in times of crisis can make markets plunge further by increasing the stress on troubled banks – but relaxing rules to avoid this margin spiral could be just as bad, a new study claims. The findings serve as a warning to central counterparties and regulators in their efforts to tackle the problem of procyclicality in clearing.
As volatility rises in a stressed market, CCPs call for more margin from their members to cover the risk of losses, draining liquidity from the market and
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