to enforce. so just as for the states in the us with their balanced budget rules, the possibility that creditors might take losses is crucial to add credibility to the fiscal framework. or put another way, it is important that debt is not “ too safe ” in the euro area – meaning that losses are excluded – otherwise the full burden for ensuring fiscal sustainability would end up on the fiscal rules, a promise which experience has shown not to be credible, or on the expectation that the central bank will eventually bail out governments, which the treaty has explicitly ruled out. the fact that euro area sovereign bonds are exposed to credit risk in this way does not mean, in principle, that they cannot also serve as safe assets. the difference is that they have to be made safe through sound fiscal policies, rather than assumed to be safe. and it is indeed clear from the structure of euro area government bond yields that credit risk is partly responsive to the outcome of fiscal policies. yet what we have seen in the euro area is that, ex post, sound fiscal policies alone are not 3 / 9 bis central bankers'speeches sufficient to make sovereign bonds safe. this is because the application of market discipline, when it comes, is often imperfect. credit risk premia tend not to increase in a continuous way that leads endogenously to better fiscal and economic policies, but are instead nonlinear. 13 credit risk is under - priced in good times when risk aversion is low, and then rapidly repriced in bad times when risk aversion spikes. the result is excessive price volatility. and in situations where such non - linearities arise, it may also lead to self - fulfilling dynamics – what economists call “ multiple equilibria ”. when sovereign bond yields rise and prices fall, demand for bonds should normally rise. but if yields rise steeply to a point that calls into question solvency, demand actually falls, producing a vicious circle. and if there is any correlation between credit risk perceptions acrossgovernment borrowers, this process in one country can create contagion to others. indeed, while eight euro area governments entered the crisis with aaa - rated sovereign issues, today only three have that status. 14 market discipline has destroyed safe assets more than it has created them. one response to this, which is now being fiercely discussed in the euro area, is to apply regulatory constraints and / or risk weights to sovereign bonds, thus encouraging systemic sectors – banks, pension funds, insurers

of effective resolution regimes for financial institutions ( fsb, 2014 ) were important milestones of this work. in 2015, at the request of g20 finance ministers and governors, relevant global standard - setting bodies agreed to further strengthen the safeguards for central clearing with the adoption of the “ ccp work plan ” ( fsb src / fsb resg / bcbs / cpmi / iosco 2015 ). the ccp work plan focuses on assessing whether existing international banque de france financial stability review no. 21 - april 2017 - the impact of financial reforms central clearing : reaping the benefits, controlling the risks benoit cœure requirements for ccp resilience, recovery and resolution are adequately implemented and whether additional guidance should be provided. it also provides for further exploring the interdependencies between ccps and their participants to better understand respective contagion channels and potential vulnerabilities. significant progress has been made in the ccp work plan in the meantime, with most deliverables expected to be finalised by mid - 2017. meanwhile, at the european union level, the european commission has proposed new rules for the recovery and resolution of ccps ( european commission, 2016 ). this article takes stock of recent progress in the global policy framework for ccps ( section 1 ) and outlines future priorities ( section 2 ). section 3 concludes. 1 | recent progress in the global policy framework for central counterparties 1 | 1 resilience ccps are exposed to various types of risks, notably credit and liquidity risk, custody and investment risk, operational risk and general business risk. robust credit and liquidity risk management is ccps ’ first and foremost line of defence against potential financial threats to their viability. ccps should be resilient in the sense that their financial resources allow them to withstand potential failures of major clearing members as well as any other extreme but plausible stress events ( “ non - default ” scenarios, e. g. related to custody investment losses, operational and legal risk and cyber threats ). box 1 cpmi - iosco additional guidance on pfmi requirements in april 2017, based on public consultation, cpmi - iosco expects to propose clearer and more granular guidance on the implementation of certain pfmi requirements, including on : • explicit board responsibilities and disclosure mechanisms regarding ccps ’ financial risk governance to promote both closer senior level scrutiny and involvement of relevant stakeholders ; • rigorous stress - testing on the basis of more detailed