Gilt lessons: CCPs and market confidence in secured financing markets

Look no further than Lehman Brothers for a reminder of what happens when the markets lose confidence in a counterparty. From mid-August to mid-September 2008, Lehman’s triparty book went from $175 billion to around $60 billion at bankruptcy. The number of buy-side cash providers doing business with Lehman fell from the mid-sixties to under 20. Most of the secured financing markets are bilateral and overnight: a vote of no confidence can still dent the markets, even with Basel III reforms. All this supports the CCP argument that their models offer a better way.
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