paul tucker : central counterparties – the agenda speech by mr paul tucker, deputy governor for financial stability at the bank of england, at the european commission conference on “ european post trading landscape : the road ahead ”, brussels, 24 october 2011. * * * thank you very much for inviting me today. the map for post - trade infrastructure is being redrawn, here in the eu, in the us, and in asia, under the policies of the g20 and financial stability board. this renewed focus on the plumbing of the financial system is welcome to central bankers. i should like to make just four points1. all starting from the proposition that the safety and soundness of central counterparties ( ccps ) is absolutely vital to preserving stability in global capital markets. 1. organisational structure some years ago, there was a debate about whether the authorities should favour “ horizontal integration ” or “ vertical integration ” of trading, clearing and settlement infrastructure. events have taken their course, and vertically integrated groups – concretely, of exchanges owning clearing houses – have become commonplace. the authorities need policies to address this. one dimension is competition. the commission are focussed on that. in terms of financial stability – my own focus – it is vital that the risk manager in the ccp, which means the heart of the ccp, should have a clear and independent line to the group board, so that they cannot be lent on by the affiliated exchange to reduce or shade initial margin requirements or collateral terms or portfolio investment policies in order to generate more turnover. this will matter more than ever during a period in which there is likely to be more than one ccp clearing some markets. in the same spirit, the core risk management functions of ccps should not be outsourced. regulators have been slow to embrace this. but i am glad to say that it does get some recognition in the emir text, perhaps not as unambiguously as is warranted in my view. 2. global ccps and access the efficiencies and risk management advantages of multilateral netting across a variety of products make it likely that the world will have a few global ccps. there must be broad access to these ccps, provided always that that can be made consistent with maintaining the integrity of risk management ( including default procedures ). the benefits of putting over the counter ( otc ) derivatives trading through ccps cannot be confined to a few currencies or markets. that is not what the g

and that is why the bank of england ’ s financial policy committee has recommended that, in the uk, any stablecoin that reaches systemic size should also meet standards equivalent to those see eg crypto industry shaken as tether ’ s dollar peg snaps | financial times ( ft. com ) ; ‘ we ’ re not revealing our secret recipe ’, tether ’ s cto says ( bloomberglinea. com ) ; and whereabouts of terra ’ s bitcoin reserve a mystery after transfers - bloomberg bank of england expected of commercial bank money. 4 in practice that is likely to mean being issued by a bank, or by a non - bank that : is subject to rigorous central bank regulation and supervision ; 5 provides coinholders with a robust legal claim ; is insolvency remote ; and transparently backs its coins with a precisely defined set of high quality and liquid assets. source : bloomberg finance l. p. digital asset research, inc. it ’ s too soon to say what those assets should be. but, to take one example proposed by some, if a systemic stablecoin were required to be fully backed by deposits at the central bank, the implications for central bank balance sheets could be very similar to cbdc ( chart 4 ). this would also be the case if a ‘ narrow bank ’ chose to issue its own tokenised deposits and put all the proceeds into holdings at the central bank. indeed, arguably any stablecoin with a credible link to fiat currency relies ultimately on settlement in central bank money. of course, that does not mean that it is central bank money : even fully - backed, regulated stablecoins would remain the liabilities of private sector companies, and hence pose a range of risks not associated with cbdcs. see record of the financial policy committee - 13 december 2019 ( bankofengland. co. uk ) and https : / / www. bankofengland. co. uk / financial - policy - summary - and - record / 2022 / march - 2022 as proposed by the uk treasury in o - s _ stablecoins _ consultation _ response. pdf ( publishing. service. gov. uk ). bank of england 3. digital currencies may alter the transmission mechanism for monetary policy a key unknown in assessing the impact of digital currencies lies in judging the extent to which they may affect the flow, and pricing, of money and credit in the economy – which in turn has implications for the transmission