1 standard ” - - that is, to hold enough liquid resources in all relevant currencies to make payments on time in the event of the default of the clearing member that would generate the largest payment obligation under a wide range of potential stress scenarios. more complex ccps and those with a systemic presence in multiple jurisdictions are encouraged to meet a “ cover 2 standard. ” the pfmi also provide guidance on the resources that qualify in meeting these requirements : cash held at a central bank or a creditworthy commercial bank, committed lines of credit, committed repurchase agreements, committed fx swap agreements, or highly marketable collateral that can be converted into cash under prearranged and highly reliable funding arrangements. there are two sets of risks involved here. first, where should ccps put their cash? as central clearing has expanded, ccps have had to deal with increasingly large amounts of cash margin. ccps can deposit some of these funds with commercial banks. but regulatory changes have made it more expensive for banks to take large deposits from other financial firms, and in some cases banks may be unwilling to accept more cash from a ccp. and many of the largest banks are also clearing members, which introduces a certain amount of wrong - way risk. a clearing - member default could be especially fraught if the defaulting bank also held large cash balances for the ccp. for this reason, ccps may prudently place limits on the amount deposited at a given institution. in order to diversify their holdings, many also place cash in the repo market. if it is available, the ability to deposit cash at a central bank allows for another safe, flexible, and potentially attractive option - - a subject i will return to later. second, how can ccps be assured that they will be able to convert securities into cash or draw on other resources in times of stress? the pfmi uses the words “ committed ” and “ pre6 arranged ” in describing qualifying liquid resources. indeed, the pfmi does not view spot transactions on the open market as reliable sources of liquidity during times of stress. the federal reserve has strongly supported this approach. liquidity plans should not take for granted that, at a time of stress involving a member default, lines of credit, repurchase agreements, or fx swaps could be arranged on the spot. committed sources of liquidity are more likely to be available. they also allow market participants and regulators to make sure that plans

market stresses around the default, which seems a near certainty, they may at the same time face a sudden increase in intraday margin calls and their own internal demands for more liquid resources. 9 these are risks that we should seek to understand better. policy implications the federal reserve is the primary supervisory authority for two designated financial market utilities ( or dfmus ), and plays a secondary role relative to the six other dfmus. as a central bank, we are particularly concerned with liquidity issues. 10 i will address four policy issues that need careful consideration as the public sector and market participants continue to address liquidity risks in central clearing. stress testing the 1987 stock market crash showed that we need to look at liquidity risks from a systemwide perspective. that event involved multiple ccps and also involved multiple links in the payments chains between banks and ccps. conducting supervisory stress tests on ccps that take liquidity risks into account would help authorities better assess the resilience of the financial system. a stress test focused on cross - ccp liquidity risks could help to identify assumptions regulatory changes since the financial crisis have encouraged banks to hold much greater amounts of high - quality liquid assets, which would help them in meeting such liquidity demands. section 804 of the dodd - frank act requires the financial stability oversight council to designate those financial market utilities that the council determines are, or are likely to become, systemically important. eight utilities have been designated : the clearing house payments company, l. l. c. ; cls bank international ; chicago mercantile exchange, inc. ; the depository trust company ; fixed income clearing corporation ; ice clear credit l. l. c. ; national securities clearing corporation ; and the options clearing corporation. that are not mutually consistent ; for example, if each ccp ’ s plans involve liquidating treasuries, is it realistic to believe that every ccp could do so simultaneously? authorities in both the united states and europe have made progress in conducting supervisory stress tests of ccps. in the united states, the cftc conducted a useful set of tests of five major ccps last year. 11 the tests analyzed each individual institution ’ s ability to withstand the credit risks emanating from the default of one or more clearing members. this was innovative and necessary work. it would be useful to build on it by adding tests that focus on liquidity risks across ccps and their largest common clearing members. such an exercise could focus on the robustness