Opinion of the European Central Bank of 14 January 2020 on the recovery and resolution of central counterparties (CON/2020/3)
Date: 2020-01-14
Institutions: European Central Bank
Subjects: Germany, banking supervision, company in difficulties, credit institution, economic stabilisation, financial solvency, financial stability, national law, payment system

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 14 January 2020 

on the recovery and resolution of central counterparties 

(CON/2020/3) 

Introduction and legal basis 

On  2  October  2019  the  European  Central  Bank  (ECB)  received  a  request  from  the  German  Federal 

Ministry  of  Finance  for  an  opinion  on  a  draft  law  introducing  dedicated  rules  for  the  recovery  and 

resolution of central counterparties (CCPs) into the Law on recovery and resolution (hereinafter the ‘draft 

law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union (TFEU) and the third, fifth and sixth indents of Article 2(1) of Council 
Decision  98/415/EC1,  as  the  draft  law  relates  to  the  Deutsche  Bundesbank,  payment  and  settlement 

systems,  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the  stability  of 

financial  institutions  and  markets,  and  the  specific  tasks  conferred  upon  the  ECB  concerning  the 

prudential  supervision  of  credit  institutions  under  Article 127(6) TFEU.  In  accordance  with  the  first 

sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 

has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  The  draft  law’s  main  purpose  is  to  create  legal  instruments  relating  to  CCPs  established  in 
Germany, in addition to the existing recovery and resolution instruments for CRR credit institutions2 
under  the  Law  on  recovery  and  resolution3,  which  implements  Directive  2014/59/EU  of  the 

1 

2 

3  

Council  Decision  98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

The  German  legal  order  distinguishes  between  two  types  of  credit  institutions.  Pursuant  to  Section  1(1)  of  the 
Banking  Act (Kreditwesengesetz)  of 9  September  1998 (Bundesgesetzblatt I p. 2776,  as amended  by article 91 of 
the law from 20 November 2019, Bundesgesetzblatt I S. 1626), a credit institution is an undertaking which conducts 
at  least  one  of  the  banking  businesses  described  in  the  second  sentence  of  Section  1(1)  of  the  Banking  Act 
commercially  or  on  a  scale  which  requires  commercially  organised  business  operations.  The  banking  businesses 
include deposit business and credit business, as well as specific securities-related activities such as principal broking 
services and safe custody business. An undertaking that acts a central counterparty is also categorised as a credit 
institution. 
Pursuant to Section 1(3d) of the Banking Act, a CRR credit institution is a credit institution that, in addition, meets the 
narrower  definition  of  a  credit  institution  set  out  in  point  1  of  Article  4(1)  of  Regulation  (EU)  No  575/2013  of  the 
European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential  requirements  for  credit  institutions  and 
investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1). 
Gesetz zur Sanierung und Abwicklung von Instituten und Finanzgruppen of 10 December 2014 (Bundesgesetzblatt I 
p. 2091) as amended by Article 8(10) of the Law of 10 July 2019 (Bundesgesetzblatt I p. 1002) Law on recovery and 
resolution. 

 
 
 
 
                                                 
 
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European  Parliament  and  of  the  Council4.  The  draft  law  constitutes  a  supplementary  chapter 

dedicated to CCPs in the Law on recovery and resolution. The provisions of the draft law apply to 

CCPs that are also CRR credit institutions within the meaning of European law, as well as to CCPs 

defined  and  licensed as  credit  institutions  according to national law. For CCPs that do not hold a 

CRR  credit  institution  licence,  the  Law  on  recovery  and  resolution,  as  supplemented  by  the  draft 

law, will apply as if the CCP was a CRR credit institution.  

1.2  The 

Law 

on 

recovery 

and 

resolution 

designates 

the 

Bundesanstalt 

für 

Finanzdienstleistungsaufsicht  (Federal  Financial  Supervisory  Authority,  hereinafter  ‘BaFin’)  as  the 

national resolution authority. BaFin is also the national supervisory authority, insofar as the ECB is 
not acting in its supervisory capacity in accordance with Council Regulation (EU) No 1024/20135.  

1.3  The Law on recovery and resolution requires CRR credit institutions to draw up their own recovery 
plans6.  The  supervisory  authority  may,  however,  in  agreement  with  the  Deutsche  Bundesbank, 

decide  to  subject  CRR  credit  institutions  to  simplified  requirements  or  to  exempt  them  from  the 

obligation  to  draw  up  recovery  plans  altogether,  subject  to  certain  conditions  relating  to  the 
institution’s systemic relevance7. Recovery plans are subject to review by the supervisory authority, 
which  decides  in  agreement  with  the  Deutsche  Bundesbank  on  their  suitability8.  The  Law  on 

recovery  and  resolution  also  provides  that  the  resolution  authority  must,  in  consultation  with  the 

supervisory authority, draw up resolution plans for all CRR credit institutions. However, it may draw 

up simplified resolution plans for certain CRR credit institutions taking into account their degree of 
systemic  relevance9.  Finally,  the  Law  on  recovery  and  resolution  sets  out  the  conditions  for  the 

resolution  of  CRR  credit  institutions,  allowing  both  the  supervisory  and  the  resolution  authority, 
following mutual consultation, to determine whether an institution is failing or likely to fail10. In this 

context,  the  Law  on  recovery  and  resolution  confers  wide-ranging  resolution  powers  on  the 

resolution  authority  and  provides  for  resolution  tools,  in  particular  the  sale  of  business  tool,  the 

bridge  institution  tool,  the  asset  separation  tool  and  the  bail-in  tool.  However,  the  resolution 

authority may also take any other measures that are deemed necessary to achieve the resolution 
objectives11.  

1.4  The  draft  law  supplements  the  Law  on  recovery  and  resolution  by  introducing  additional 
requirements  for  the  design  of  recovery  plans  by  CCPs12.  It  requires  CCPs  both  to  consider 

scenarios  that  may  be  of  particular  relevance  for  the  critical  functions  of  CCPs  and  to  take 

4  

5  

6  

7  
8  

9  
10  
11  

12  

Directive 2014/59/EU of the European Parliament and the Council of 15 May 2014 establishing a framework for the 
recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and 
Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC,  2011/35/EU,  2012/30/EU  and 
2013/36/EU,  and  Regulations  (EU)  No  1093/2010  and  (EU)  No  648/2012,  of  the  European  Parliament  and  of  the 
Council (OJ L 173, 12.6.2014, p. 190).    
Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 
The recovery planning is regulated in Chapter 1 of Part 2 of the Law on recovery and resolution. 

See Sections 19 and 20 of the Law on recovery and resolution. 
See Section 15 of the Law on recovery and resolution. 

See Chapter 1 of Part 3 of the Law on recovery and resolution. 
See Section 62(1)of the Law on recovery and resolution. 
See Chapter 2 of Part 4, of the Law on recovery and resolution. 

See Article 1 of the draft law, new Section 152b of the Law on recovery and resolution. 

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adequate  measures  to  address  these  scenarios.  To  this  end  CCPs  must  ensure  the  effective 

implementation of the proposed measures, including the adaptation of their clearing conditions.   

1.5  The draft law requires the supervisory authority to assess the proposed recovery plans of CCPs13. 

If  the  supervisory  authority  concludes  that  the  recovery  plans  do  not  meet  the  statutory 

requirements or that there are potential barriers to their successful implementation, it may request 

that CCPs revise their recovery plans. Should the CCPs not submit revised recovery plans, or if the 

recovery  plans  still  do  not  meet  the  statutory  requirements,  the  supervisory  authority  may,  in 

addition to imposing the measures provided for under the Law on recovery and resolution, require 

CCPs to amend their contractual arrangements as necessary. 

1.6  The draft law requires the resolution authority to draw up resolution plans for CCPs in consultation 
with the supervisory authority14. Resolution plans must in particular take into account, in addition to 

the existing statutory requirements, their impact on CCPs’ clearing members, on their clients  and 

on  the  financial  systems  in  the  relevant  Member  States  and  in  the  Union  as  a  whole.  Resolution 

plans must be reviewed at least annually and whenever certain major events arise. 

1.7  The draft law entitles the resolution authority, following coordination with the supervisory authority 

and the Deutsche Bundesbank, to require in addition to the measures foreseen under the Law on 

recovery and resolution, a modification of CCPs to modify their clearing conditions and contractual 

arrangements  if  the  resolution  authority  concludes  that  there  are  significant  impediments  to  the 
resolvability  of  CCPs15.  In  this  regard  the  draft  law  empowers  the  Federal  Ministry  of  Finance  to 

adopt  an  ordinance  setting  out  detailed  provisions  on  changes  necessary  to  achieve  resolvability 

and  appropriate  amendments  to  the  clearing  conditions  and  contractual  or  other  related 

arrangements of CCPs and the conditions under which such amendments may be ordered. 

1.8  Where the resolution  conditions,  as set out in the  Law  on recovery  and resolution16, are met, the 

resolution  authority  may  take,  in  addition  to  the  measures  stipulated  in  the  Law  on  recovery  and 

resolution,  all  necessary  measures  to  achieve  the  resolution  objectives,  in  particular  it  may: 

(a) terminate  contracts,  whereby  the  resolution  authority  may  terminate  all  or  only  specific 

obligations  of  a  CCP  undergoing  resolution;  (b)  reduce  the  profits  to  be  paid  to  non-defaulting 
clearing  members,  and  (c)  make  additional  cash  calls17.  However,  before  resorting  to  these 

resolution tools, the resolution authority must first enforce the contractual rights of the CCP. Under 

certain conditions the resolution authority may also desist from asserting contractual rights in full or 
in  part18.  Furthermore,  the  resolution  authority  may  not  require  an  additional  cash  call  from  the 
Deutsche Bundesbank or a reduction in the Deutsche Bundesbank’s valuation gains.19 

13  

14  
15  

16  
17  
18  

19  

See Article 1 of the draft law, new Sections 152c and 152d of the Law on recovery and resolution. 

See Article 1 of the draft law, new Section 152e of the Law on recovery and resolution. 
See Article 1 of the draft law, new Section 152f of the Law on recovery and resolution. 

See Section 62 of the Law on recovery and resolution. 
See Article 1 of the draft law, new Section 152h of the Law on recovery and resolution. 
See Article 1 of the draft law, new Section 152h(2) and (3) of the Law on recovery and resolution. 

See Article 1 of the draft law, new Section 152h(5) of the Law on recovery and resolution. 

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1.9  The  draft  law  introduces  safeguards  and  compensation  rights  for  shareholders,  creditors  and 

clearing members whose losses in the resolution process exceed those in a presumed insolvency 
procedure (the ‘no creditor worse off than in insolvency’ principle)20.  

1.10  According  to  the  explanatory  memorandum,  the  draft  law  will  be  replaced  by  a  Union  regulation 

once such regulation is adopted. 

1.11  The  draft  law  also  introduces  amendments  that  need  to  be  made  to  certain  supervisory  acts,  in 
particular the Law on securities trading21, in response to Regulation (EU) 2019/834 of the European 
Parliament  and  of  the  Council22.  Finally,  the  draft  law  introduces  several  editorial  changes  to  a 
variety of supervisory acts and ordinances.  

2. 

General observations  

2.1  The ECB welcomes the draft law’s general objective of preserving financial stability in the event of 

the  distress  or  failure  of  a  CCP.  Due  to  their  interconnectedness  and  market  importance,  CCPs 

must  generally  be  considered  to  be  of  systemic  importance.  The  failure  or  distress  of  a  CCP  is 

likely  to  impair  the  proper  functioning  of  the  financial  system,  which  also  has  negative 

consequences  for  the  rest  of  the  economy.  Minimising  such  contagion  risks  through  robust  CCP 

recovery and resolution arrangements is therefore critical.  

2.2  The  ECB  shares  the  Commission’s  view  that  a  harmonised  approach  to  the  recovery  and 
resolution  of  CCPs  across  the  Union  is  appropriate23.  In  the  event  of  the  distress  or  failure  of  a 

CCP, divergent approaches to their recovery and resolution across the Member States could lead 

to  the  disruption  of  critical  functions  to  clearing  members  and  clients  across  borders  and  wider 

financial instability, especially since cross-border membership of European CCPs is widespread. A 

European approach is also warranted to ensure that the legitimate concerns of all affected  Union 

stakeholders  are  duly  considered  in  the  context  of  CCP  recovery  and  resolution  planning  and 

execution, as well as to ensure a level playing field among Union CCPs. 

2.3  The draft law regulates aspects of the recovery and resolution of CCPs that are provided for in the 

Commission’s 2016 proposal for a regulation of the European Parliament and  of the Council on a 

framework  for  the  recovery  and  resolution  of  central  counterparties  and  amending  Regulations 

(EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365 (hereinafter the ‘Union CCP recovery 
and  resolution  proposal’),  on  which  the  ECB  opined  in  201724.  It  is  understood  that  the  Union’s 

CCP  recovery  and  resolution  proposal  is  currently  under  discussion  in  the  European  Parliament 

and the Council, and that the decision-making process may be finalised in 2020. In this context, it is 

See Article 1 of the draft law, new Section 152m of the Law on recovery and resolution. 

20  
21   Wertpapierhandelsgesetz of 9 September 1998 (Bundesgesetzblatt I p. 2708) as amended by Article 58 of the Law 

22  

23  

24  

of 20 November 2019 (Bundesgesetzblatt I p. 1626). 
See  Regulation  (EU)  2019/834  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending 
Regulation (EU)  No  648/2012  as  regards  the  clearing  obligation,  the  suspension  of  the  clearing  obligation,  the 
reporting  requirements,  the  risk-mitigation  techniques  for  OTC  derivative  contracts  not  cleared  by  a  central 
counterparty,  the  registration  and  supervision  of  trade  repositories  and  the  requirements  for  trade  repositories   (OJ 
L 141, 28.5.2019, p. 42). 

See  paragraphs  2.1  and  2.2  of  the  Explanatory  Memorandum  to  the  proposal  for  a  regulation  of  the  European 
Parliament  and  of  the  Council  on  a  framework  for  the  recovery  and  resolution  of  central  counterparties  and 
amending Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365, COM(2016) 856 final. 
See Opinion CON/2017/38. All ECB Opinions are published on the ECB’s website at www.ecb.europa.eu.  

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understood that the German legislator will review the draft law once the Union’s CCP recovery and 

resolution proposal is adopted, in order to ensure full consistency with Union legislation. However, 

once  Union  legislation  is  adopted,  the  draft  law  will  require  additional  adaptation,  not  just  by  the 

legislator but also on the part of CCPs, their clearing members and clients.  

2.4  A national legislative proposal is subject to certain  inherent restrictions that are not imposed on a 

proposal at Union level. 

First,  a  CCP  may  hold  an  authorisation  as  a  CRR  credit  institution.  The  draft  law  has  followed  a 

consistent approach for the recovery and resolution of CCPs, irrespective of whether they are CRR 

credit  institutions.  However,  the  compulsory  rules  governing  the  recovery  and  resolution  of  CRR 

credit  institutions are laid down  in Directive 2014/59/EU  and Regulation (EU) No 806/2014  of the 
European  Parliament  and  of  the  Council25.  A  national  legislative  proposal’s  rules  on  the  recovery 

and  resolution  of  a  CCP  that  is  a  CRR  credit  institution  may  further  supplement  Directive 

2014/59/EU  and  Regulation  (EU)  No  806/2014,  however,  it  must  not  contradict  the  Union  legal 

requirements. This limitation does not apply  to CCPs  that do not hold an authorisation  as a CRR 

credit institution. Establishing diverging recovery and resolution rules for CCPs depending on their 

status as a CRR credit institution could undermine the objective of preserving a Union level playing 

field and, ultimately, financial stability.  

Second,  under  the  Union’s  CCP  recovery  and  resolution  proposal  resolution  colleges  are  to  be 

established  comprising  Member  State  and  Union  authorities.  A  national  proposal  is  necessarily 

limited  to  imposing  rules  only  on  authorities  within  its  jurisdiction  as  it  can  only  invite,  but  cannot 

dictate  the  input  of  authorities  in  other  Member  States.  The  draft  law  is  similarly  incapable  of 

introducing a horizontal coordination of recovery and resolution plans across Union CCPs. 

2.5  The  draft  law  seeks  synergies  by  building  on  the  existing  framework  for  bank  recovery  and 

resolution,  according  to  which  resolution  and  supervisory  authorities  should  be  prepared  for,  and 

have  adequate  recovery  and  resolution  tools  at  their  disposal  to  handle,  situations  involving  the 

failure of credit institutions. However, due to their divergent functions, organisational structures and 

business models, the risks inherent in banks and CCPs are different. Specific tools and powers are 

therefore  needed  for  CCP  failure  scenarios  caused  either  by  the  default  of  the  CCP's  clearing 

members or by other non-default-related events. Therefore, an approach that simply supplements 

the rules for bank recovery and resolution may  sometimes fail to respect the intricacies of a CCP 
recovery and resolution26. For example, this shortcoming becomes apparent in connection with the 

initiation of a resolution. Article 32(1) of Directive 2014/59/EU requires that a CRR credit institution 

is  determined  as  failing  or  likely  to  fail  before  its  resolution  can  be  initiated.  According  to  the 

25  

26  

Regulation (EU) No  806/2014 of the European Parliament and  of the Council of 15 July  2014  establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of 
a  Single  Resolution  Mechanism  and  a  Single  Resolution  Fund  and  amending  Regulation  (EU)  No 1093/2010  (OJ 
L 225, 30.7.2014, p. 1). 
In this context it is understood that in Germany there are two CCPs that have been authorised to offer services and 
activities  in  the  Union  in  accordance  with  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the 
Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1): 
(1)  Eurex  Clearing  AG,  which  it  is  understood  is  supervised  as  a  less  significant  CRR  credit  institution  within  the 
framework  of  the  Single  Supervisory  Mechanism,  and  (2) European  Commodity  Clearing,  a  non-CRR  credit 
institution CCP supervised by BaFin. As a CRR credit institution, Eurex already falls under the scope of the  Law on 
recovery and resolution. It is also understood that one of Eurex’s clearing members is the Deutsche Bundesbank. 

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Union’s  CCP  recovery  and  resolution  proposal27,  a  resolution  authority  may  also  initiate  the 

resolution of a CCP irrespective of whether the CCP is failing or likely to fail if the CCP’s envisaged 

recovery measures could cause significant adverse effects for the financial system. 

3. 

Specific observations 

It  is  recalled  that  the  draft  law  would  have  to  be  reviewed  once  the  Union’s  CCP  recovery  and 

resolution  proposal  is  adopted.  The  observations  made  in  this  opinion  are  therefore  without 

prejudice  to  the  need  for  the  German  legislator  to  adapt  the  draft  legislation  to  any  future  Union 

legislation.  

Against  this  background  the  ECB  acknowledges  that  the  draft  law  has  taken  into  account  the 

Union’s CCP recovery and resolution proposal, but notes that there is still room for improvement in 

the following areas. 

3.1  Recovery Planning 

3.1.1  Recovery  plans  should  be  required  to  envisage  severe  scenarios,  including  the  default  of  more 

than two clearing members to which a CCP has its largest exposures, and both idiosyncratic and 

system-wide  stress  scenarios,  taking  into  account  the  potential  impact  of  domestic  and  cross-
border contagion in crises, as well as simultaneous crises in several significant markets28. 

3.1.2  It would be useful to clarify that BaFin’s review, as supervisory authority, must take place not only 

in  the  context  of  the  initial  approval  of  the  recovery  plan,  but  also  at  a  later  stage,  when  BaFin 

conducts or updates its assessment of the CCP's resolvability. This is important because otherwise 

BaFin is likely only to conduct its resolution planning and resolvability assessments after the CCP’s 
recovery plan has been finalised29. 

3.1.3  The  draft  law  provides  that  CCPs  may  in  principle  benefit  from  the  simplified  procedure  for 
designing a recovery plan, as laid down for credit institutions30. Given the systemic nature of each 

CCP, the  ECB  expects that the requirements that must be satisfied for a simplified procedure for 

designing  recovery  plans  to  be  applicable  would  not  usually  be  fulfilled  in  the  case  of  CCPs  and 

that  therefore,  CCP  recovery  plans  should,  in  practice,  be  excluded  from  such  simplified 

procedures. 

3.2  Resolution Planning 

3.2.1  Resolution plans should clearly differentiate between potential stress scenarios that are related to a 

clearing member’s default and those that are due to other reasons. Similarly, in order to ensure that 

resolution  plans  are  adequate  for  all  relevant  scenarios  going  beyond  ‘extreme  but  plausible’ 

market conditions, the resolution plan should, in terms of default-related failure scenarios, take into 

consideration  not  only  the  default  of  one  or  more  of  the  CCP's  clearing  members,  but  also  the 

default  of  at  least  the  three  clearing  members  to  which  the  CCP  has  the  largest  exposures, 

27  
28  
29  
30  

See Article 22(3) of the Union’s CCP recovery and resolution proposal. 
See paragraph 2.3.1 of Opinion CON/2017/38. 
See paragraph 2.3.2 of Opinion CON/2017/38. 
See Article 1 of the draft law, new Section 152b(1) in conjunction with new Section 152a(3) of the Law on recovery 
and resolution. 

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considering that CCPs are already required under Regulation (EU) No 648/2012 to hold sufficient 

financial resources to withstand the potential default of at least the two clearing members to which 
the CCP has the largest exposures31.  

3.2.2  The resolution plan should require that CCPs do not assume extraordinary public financial support, 

central  bank  emergency  liquidity  assistance  or  central  bank  liquidity  assistance  provided  under 
non-standard  collateralisation,  tenor  and  interest  terms32.  Moreover,  given  the  importance  of  pre-

empting potential taxpayer losses in resolution, the  draft law should also expressly require BaFin, 

as  resolution  authority,  to  make  prudent  assumptions  about  the  financial  resources  that  may  be 

required to achieve resolution objectives and the resources that it expects to be available under the 
CCP's rules and arrangements at the time of entry into resolution33. 

3.2.3  In  order  to  ensure  better  consistency  between  the  key  aspects  of  the  resolution  plan  and 
international standards34, the following items should be added to the minimum content of resolution 
plans35. 

First,  an  estimation  of  the  timeframe  for  the  replenishment  of  the  financial  resources  of  the  CCP 

(i.e. default fund and regulatory capital). 

Second, a description of the general approach and decision-making processes followed by BaFin, 

as  resolution  authority,  in  key  areas  of  resolution  with  the  objective  of  fostering  planning  and 

stakeholder  transparency  around  prospective  resolution  actions.  This  should  include:  (a)  BaFin's 

prospective approach for triggering resolution, including key indicators that would influence BaFin's 

decision  whether to put the CCP in resolution in different types of default and non-default related 

resolution  scenarios;  and  (b)  to  the  extent  that  BaFin  needs  to  depart  from  the  CCP's  rules  and 

arrangements, the general approach that BaFin would expect to follow in calculating and allocating 

losses,  including  the  presumed  choice  and  sequencing  of  different  loss  allocation  tools,  and  how 

BaFin  would  expect  to  apply  the  ‘no  creditor  worse  off  than  in  insolvency’  safeguard  and  assess 

losses under the counterfactual for these purposes. 

Given the granular level of these requirements it may, however, be more appropriate to implement 

them via an announcement by BaFin, rather than in the draft law itself. 

3.3  Resolvability 

BaFin,  as  resolution  authority,  should  be  empowered  to  require  a  CCP  to  set  aside  resources  to 

increase  its  capacity  for  loss  absorption,  recapitalisation  and  the  replenishment  of  pre-funded 

resources, should the available resolution funding be deemed insufficient. In order to give effect to 

this power, regulations adopted by the Ministry of Finance or BaFin under the draft law should, as 

regards  assessing  resolvability,  specify  minimum  criteria  to  be  considered  by  BaFin  when 
assessing  the  adequacy  of  a  CCP's  resolution  funding36.  As  a  minimum  BaFin  should  take  into 

account the following elements.  

31  
32  

33  
34  
35  

36  

See paragraph 2.4.1 of Opinion CON/2017/38. 
See Section 40(2) of the Law on recovery and resolution. 
See paragraph 2.4.1 of Opinion CON/2017/38. 
See section 7.5 (i) and (v) of the FSB's ‘Guidance on Central Counterparty Resolution and Resolution Planning’. 
See paragraph 2.4.1 of Opinion CON/2017/38. 

See paragraph 2.5.1 of Opinion CON/2017/38. 

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First, in the event of default-related resolution scenarios: (a) the risk characteristics, complexity and 

pricing uncertainties of the products cleared, and the related potential  degree of error in initial and 

variation  margin  calculations;  (b)  the  size,  structure  and  liquidity  of  the  underlying  market  in 

stressed conditions; (c) the number of clearing member defaults that would be covered by available 

pre-funded  and  committed  resources  under  ‘extreme  but  plausible’  conditions;  (d)  the  availability 

and  potential impact on  affected clearing  members  of tools such as partial tear-ups and  variation 

margin  gains  haircutting;  and  (e)  the  credibility  of  unfunded  arrangements  in  meeting  the  CCP's 

potential needs; and 

Second, and for all types of loss, the substitutability  of the CCP in the markets it serves, and the 

credibility of any additional arrangements, such as insurance agreements or parental guarantees, 

that may be available to address uncovered credit losses.  

3.4  Resolution tools 

In order to pre-empt moral hazard and minimise potential taxpayer losses, the use of State aid for 

the  purpose  of  CCP  resolution  should  not  only  be  subject  to  the  condition  of  approval  under  the 
Union State aid framework37, but should also be dependent on credible mechanisms for the timely 
and comprehensive recovery of any resources provided38.  

The ECB welcomes the exclusion of the Deutsche Bundesbank from certain CCP resolution tools, 
namely cash calls and  the  reduction  in  valuation gains39. This is in  line  with the  ECB’s stance as 

expressed in its opinion on the Union’s CCP recovery and resolution proposal, which emphasised 
the special features of central banks as CCP clearing members40. The ECB therefore recommends 

that  the  other  members  of  the  European  System  of  Central  Banks  also  be  excluded  from  the 

operation of the draft law.  

3.5 

‘No creditor worse off than in insolvency’ principle  

The ECB notes that the ‘no-creditor-worse-off-than-in-insolvency’ principle is a critical safeguard to 

ensure  that  CCP  participants,  shareholders  and  other  creditors  would  not  be  treated  less 

favourably  in  resolution  than  under  the  hypothetical  alternative  scenario  where  the  resolution 

authority  would  not  have  intervened  and  the  CCP  would  have  been  liquidated  under  applicable 
insolvency law41.  

At  the  same  time,  it  is  important  that  the  valuation  methodology  underlying  the  application  of  the 

no-creditor-worse-off  principle  properly  reflects  the  fair  value  of  business  continuity  preserved  by 

CCP  resolution  in  order  to  avoid  excessive  compensation  claims  by  relevant  stakeholders.  The 

need  for  a  fair  and  balanced  approach  in  this  respect  is  underlined  by  the  related  risks  for  the 

public sector, with the financial burden ultimately being borne by taxpayers. Taking proper account 

of the fair value of business continuity preserved by CCP resolution is an essential consideration in 

the context of CCP resolution, which would only be envisaged to take place in exceptionally severe 

market events,  where the  disruption of a CCP’s critical functions  would most likely be associated 

37  
38  
39 
40 

41 

See Section 103(4) of the Law on recovery and resolution. 

See paragraph 2.6.3 of Opinion CON/2017/38. 
See Article 1 of the draft law, new Section 152h(5), of the Law on recovery and resolution.  
See paragraph 2.1.3 of Opinion CON/2017/38.  
See paragraph 2.7 of Opinion CON/2017/38.  

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with a large-scale destruction of financial value and very limited opportunities for bilateral clearing 

alternatives. 

The ECB therefore recommends that a fair valuation of the CCP for purposes  of the application of 

the no-creditor-worse-off principle would need to be not only carried out in terms of the assets and 

liabilities reflected on the CCP's balance sheet at the point in time when resolution is triggered, but 

would need to be based on a more comprehensive, realistic assessment of the CCP's value in the 

event of its liquidation, taking full account of losses, replacement costs, and the destruction of value 

that would result from the closure or liquidation of the CCP. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 14 January 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

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