While clearing members post significant prefunded resources to CCPs to reduce risks arising from potential clearing member default, these defences may be insufficient for coping with extreme situations.
In particular, if prefunded CCP margins and default funds are eroded, CCPs’ ability to recover their financial strength depends on the capacity of their clearing members to absorb large and unexpected losses on an ad hoc basis. This may be a challenge in situations of severe market stress, when banks may need to withstand credit and liquidity pressures from multiple sources.