The Failure of a Clearinghouse: Empirical Evidence

63 Pages Posted: 14 Nov 2016

Multiple version iconThere are 3 versions of this paper

Date Written: November 2016


We provide the first empirical description of the failure of a derivatives clearinghouse. We use novel, hand-collected, archive data to study risk management incentives by the Paris commodity futures clearinghouse around its failure in 1974. We do not find evidence of lenient risk management during the commodity price boom of 1973-1974. However, we show strong distortions of risk management incentives, akin to risk-shifting, as soon as prices collapsed and a large clearing member approached distress. Distortions persist during the recovery/resolution phase. Theoretically, these distortions suggest that capitalization and governance were weak, but do not imply that moral hazard was significant before the failure. Our findings have implications for the design of clearing institutions, including their default management schemes.

Keywords: CCP, Central clearing, Collateral, Derivatives, Failure, Resolution

JEL Classification: G23

Suggested Citation

Bignon, Vincent and Vuillemey, Guillaume, The Failure of a Clearinghouse: Empirical Evidence (November 2016). CEPR Discussion Paper No. DP11630, Available at SSRN:

Vincent Bignon (Contact Author)

Banque de France ( email )

DGEI 49-1430
31 rue Croix des Petits Champs
Paris, 75001
+33142924330 (Phone)

Guillaume Vuillemey

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351

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