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Banking fragility rooted in justice failures Evidence from Ukraine
Policy Contribution

The Failure of a Clearinghouse: Empirical Evidence

by Vincent Bignon / Guillaume Vuillemey
05 December 2017

The Failure of a Clearinghouse: Empirical Evidence

Vincent Bignon / Guillaume Vuillemey

ECMI Working Paper No. 6 / December 2017

This paper provides the first detailed empirical analysis of the failure of a derivatives clearinghouse: the Caisse de Liquidation, which defaulted in Paris in 1974. Using archival data, the authors find three main causes of the failure: i) a weak pool of investors, ii) the inability to contain the growth of a large member position and iii) risk-shifting decisions by the clearinghouse. Risk-shifting incentives aligned the clearinghouse’s interests with those of the defaulting member, induced delays in the liquidation of the defaulted position and led attempts at private renegotiation to fail. The results have implications for current policy debates on the design and resolution of clearing institutions.

Vincent Bignon is at the Banque de France (email: vincent.bignon@banque-france.fr), and Guillaume Vuillemey (contact author) is at HEC Paris and CEPR (email: vuillemey@hec.fr).

The paper has received the Best Paper Award at the ECMI Annual Conference 2017, held in Brussels on 23 November.


About the Authors


  • Author
    Vincent Bignon
    Vincent Bignon
  • Author
    Guillaume Vuillemey
    Guillaume Vuillemey
The Failure of a Clearinghouse: Empirical Evidence
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