The Failure of a Clearinghouse: Empirical Evidence

Tuesday, 5 December 2017
ECMI Working Papers
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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:, and Guillaume Vuillemey (contact author) is at HEC Paris and CEPR (email: Their paper was selected by a panel of academic reviewers to receive an award for the best paper at the Annual Conference of the European Capital Markets Institute (ECMI), held in Brussels on 23 November 2017.