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Ismael Alexander Boudiaf

5 April 2023
OCCASIONAL PAPER SERIES - No. 314
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Abstract
In this paper we aim to provide a holistic understanding of the Initial Margin (IM) models used by Central Counterparties (CCPs) in Europe. In addition to discussing their relevance in terms of CCP risk management and their importance for the functioning of financial markets, we provide an overview of the main modelling frameworks used, including Standard Portfolio Analysis of Risk (SPAN) and Value at Risk (VaR) models.By leveraging on publicly available data, we provide an up-to-date picture of current modelling practices for specific cleared product classes, as well as various trends in IM modelling practices in Europe. We show how IM model frameworks vary materially, depending on the CCP’s past choices and the products it clears. Despite a propensity to switch to VaR models, idiosyncrasies and differences across CCPs are likely to persist.We conclude by highlighting current and upcoming challenges and risks to CCP IM model frameworks and linking the current status quo with ongoing and upcoming regulatory work at European and international level.
JEL Code
G15 : Financial Economics→General Financial Markets→International Financial Markets
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G19 : Financial Economics→General Financial Markets→Other
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
12 May 2022
OCCASIONAL PAPER SERIES - No. 292
Details
Abstract
After addressing the securitisation of non-performing loans (NPLs) within the broader context of the ECB’s efforts to reduce NPL stocks and inflows, we investigate the structural and pricing features of NPL securitisations, issued by large banks in the euro area, by drawing on a unique and comprehensive dataset. In doing so, we provide an overview and typology of NPL securitisations issued in the past five years by large banks in the euro area and propose a concrete framework to compare and assess NPL securitisations across multiple dimensions. Despite methodological constraints resulting from the inherently bespoke nature of securitisations, we are able to identify structural differences between transactions that rely solely on private market participants and transactions that benefit from government guarantee schemes. Indeed, the existing data indicates that transactions involving government guarantee schemes display distinct structural features and higher costs for originating banks when compared with purely private market transactions in our dataset. Our analysis indicates that government guarantee schemes might not solely act as an incentive to new investors who would otherwise not invest in NPLs, but possibly also create conditions, for a new market, distinct in particular from the private NPL securitisations market (in terms of asset quality, capital efficiency, etc.). We believe that further research on the impact of government guarantee schemes on market participants’ behaviour and on the pricing and structuring of NPL transactions, as well as their impact over time would greatly help policymakers and supervisors to strengthen the design of future policy options for dealing with NPL stocks.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G29 : Financial Economics→Financial Institutions and Services→Other