6  BIS central bankers’ speeches  However, even enhanced recovery tools may not be enough to prevent the CCP from being resolved, first of all because it is impossible to estimate ex ante the size of potential uncovered exposures, secondly because under certain circumstances it might be preferable to resolve a CCP – especially if the market has lost confidence in this CCP as a going concern. Effective CCP resolution as an ultimate tool. Lastly, we need to assess whether more assurances are needed so that a CCP can be effectively resolved and can re-launch its viable operations, and whether the measures discussed before are either ineffective or out of line with market preferences. Much like recovery frameworks, CCP resolution frameworks are currently being designed and implemented across jurisdictions. The FSB is reviewing CCP resolution regimes and resolution planning arrangements. Based on this review, it may develop minimum standards for CCP resolution planning, strategies and tools without resorting to a government bailout, and without resulting in contagion to other parts of the financial system. Meanwhile, the European Commission is preparing specific EU legislation. If, after an in-depth assessment, authorities come to the conclusion that an additional source of financial resources is needed, what form should these extra funds take? Let me first reiterate that any bailout of CCPs with public money should be categorically excluded. Resolution plans should fully allocate losses to CCPs and their participants.
Furthermore, taxpayers should obviously not be liable for any losses incurred by CCPs. Losses should be entirely borne by the CCPs themselves and their participants, in an appropriate and proportional manner, and in line with prudent incentives. In particular, the involvement of indirect participants should be carefully considered: their contribution to the loss allocation process should take into account the fact that they have no contractual agreements with the CCP, and, unlike direct members, have no part in the CCP’s risk governance process (and therefore have no say in the CCP’s risk management). Lastly, the issue of compensating clearing members for losses incurred during a recovery or resolution process remains comparatively unexplored and deserves careful attention.10 Let me now turn to the various tools that authorities could use to address potential shortcomings in CCP risk management and loss-absorption capacities. These options have very different implications, namely in terms of sharing the funding needs between CCPs and participants, and in terms of providing the right incentives to CCPs’ stakeholders. Increasing the level of pre-funded resources held by CCPs to cover default losses beyond the current standards. One possible conclusion from the current review of the international implementation of regulatory requirements, and the analysis and assessments being carried out in parallel, could be that standards regarding margins and stress testing are sufficiently stringent, but are not implemented consistently across CCPs and jurisdictions.