How Does CCP Skin In The Game Affect Risk Management?
The BIS have conducated a rigorous study using public metrics to look for a relationship between the amount of CCP capital at risk in the default waterfall, and the behaviour of CCP risk models. I won't spoil the surprise on the outcome, but this appears to be the first quantitative study into the possibility that if a CCP is likely to lose money, they operate more conservative risk models.
The paper covers:
- The default waterfall
- CCP profitability
- The hypotheses to be tested
- Public data, featuring ClarusFT
- Model risk management
- The role of 'skin in the game'
- The value of a franchise versus risk
- The conclusion
More information and the PDF plus the outcome