It is instead a qualitative judgement about the credibility and feasibility of the different types of resources of a CCP to absorb loss and replenish its going concern requirements. CCPs have different liability structures from banks and therefore the assessment of the absorbency of these structures and the appropriateness of additional forms of LAC is more likely to be different from banks than it is to be the same. That assessment of LAC will need to consider the extent to which unfunded commitments from members can be relied upon given the procyclicality of calling for them in stressed circumstances. It means assessing the credibility of allocating losses via cash calls or variation margin haircutting and the incentives that this generates in clearing members and clients to continue to clear through the CCP. And it also means looking not just at loss absorbency for clearing member default but also at the CCP’s capacity to absorb losses and recapitalise where a loss springs from operational or other losses not covered in full by loss allocation arrangements with its members. Point of entry to resolution One issue that is necessarily intertwined with the question of resources is the point of entry into resolution. As I have described, resolution is a financial reconstruction. For it to be effective it cannot be exercised only once the financial resources in a firm have already been exhausted.
Some reporting and disclosure requirements were extended, reducing the operational burden on banks; and some market risk-based capital requirements that were deemed to have moved excessively during the episode were offset.1 At the same time, fiscal authorities began to provide support to economies entering lockdown. In the UK, that included government guarantees for lending to the corporate sector as well as income support schemes for employees furloughed as businesses shut or scaled back their activities. The size of the policy response was huge. Across the US, Euro Area, UK and Japan, central bank assets increased by around $ trillion in 2020, more than twice their increase in the year following the collapse of Lehman Brothers. And, according to the IMF, by mid-March 2021, global pandemic-related fiscal support measures totalled $ trillion (around 19% of world GDP).2 This is at least twice as large as the fiscal response observed during the Global Financial Crisis. In 2020 alone, average overall fiscal deficits reached 11.7% of GDP for advanced economies, the largest measure the IMF has recorded since they began gathering data. As a result of all of these interventions, conditions stabilised. There was no credit crunch: credit provision to businesses increased by more than 10% during 2020.