Under the LCR, a bank is required to maintain high-quality liquid assets that are sufficient to withstand an extreme yet plausible margin call from its derivatives counterparties.11 Importantly, the liquidity requirement depends on the member’s net derivatives position with the CCP – if the position is hedged, the liquidity requirement will be appropriately attenuated.
Ensuring the stability of OTC derivatives markets that are not centrally cleared: margin requirements for noncleared derivatives While central clearing is important and is expected to increase substantially over time, a significant portion of nonstandardized, bespoke derivatives will never be suitable for central clearing. This bilaterally cleared part of the market was a principal source of systemic risk during the crisis.