clearing members altogether and bear it themselves. ccps are risk poolers, not insurance providers. in fact, a substantial increase of “ skin in the game ” could provide clearing members with a false sense of security, by reducing their potential contribution to the loss - allocation process. 12 this could lead them to be less vigilant in monitoring risks, which may have severe consequences for the safety of ccps. furthermore, in order to represent any meaningful part of the default waterfall, “ skin in the game ” would need to increase dramatically, thus completely changing the size of ccp balance sheets and their business models. this could even defeat the purpose of mandatory central clearing by pushing ccps to dramatically increase the cost of clearing, or to compromise on their risk management in order to retain profitability. in sum, it seems reasonable that an increase in prefunded resources, should it become necessary, should be mainly borne by clearing members. strengthening ccp recovery capabilities via specific recovery tools. an alternative conclusion to our current discussions could be that cover 2 is an appropriate standard for ensuring ccp resilience in a pre - recovery phase, but that more reassurances are needed to ensure ccps can adequately cope with a recovery situation if they face tail losses. let me stress that, here too, it is too early to state whether and, if so, what additional guidance regarding recovery capacities will be needed. however, let us think about the ways in which authorities could improve ccp recovery tools if the need did arise. 13 in a recovery situation, a significant amount of additional funding could come from ex post cash calls on non - defaulting clearing members, also referred to as “ default fund top - ups ” or “ emergency assessments ”. this could provide ccps with ample resources to avoid a complete depletion of their capital, and would share the funding burden across the whole clearing membership. such assessments are usually allocated according to each member ’ s contribution to the ccp ’ s default fund. this way of allocating assessments, provided it is transparent, gives members a degree of predictability about what will happen. nevertheless, they could expose surviving clearing members to sudden and very large liquidity demands which they would have to source in the market, and could thus have strong contagion effects14 – even pushing members to close out their contracts and leave the ccp, rather than face the spiralling costs of remaining a member. for these reasons, such tools may prove problematic for bank

since the financial crisis. however, catastrophic losses beyond those already covered by the regulatory requirements could still occur. given the critical role of ccps in financial markets, regulators need to think the unthinkable. indeed, stress events concerning ccps are – thankfully – rare : the most recent example of a ccp failure was the collapse of the hong kong futures exchange clearing house in 1987. a more recent – albeit less dramatic – stress event was the uncertainty caused by the default of a clearing member at krx, the south korean ccp, which caused it to tap its mutualised default fund, and revealed that clearing members were not always aware of their potential liabilities towards the ccp. when such events occur, they have the potential to shut down the markets they serve. with the emergence of supersystemic ccps serving global derivatives markets, a ccp failure could be a catastrophic event of global proportions. in september 2014, the gross notional outstanding amount of centrally cleared positions was estimated at usd 169 trillion for otc interest rate derivatives, and at usd 14 trillion for credit derivatives. 7 the sheer magnitude of these figures ( around ten times the gdp of the united states or european union ) gives us an idea of the severity of the potential consequences from a stress event at a major global ccp. authorities see the distinct benefits of central clearing and wish to set proper market incentives for participants to move away from bilateral trading and into the centrally cleared world. mandatory central clearing allows risks to be pooled, monitored and properly see cpmi - iosco, recovery of financial market infrastructures, october 2014. see fsb, key attributes of effective resolution regimes for financial institutions, fmi annex, october 2014. see cpmi - iosco, disclosure framework and assessment methodology, december 2012. see cpmi - iosco, public quantitative disclosure standards for central counterparties, february 2015. see fsb, eighth progress report on implementation of otc derivatives market reforms, november 2014. bis central bankers ’ speeches managed. however, pushing more complex products towards mandatory central clearing makes risk management more challenging, and therefore may increase the risks to which ccps and clearing members are exposed. authorities may need to assess whether overly complex products should really be submitted to central clearing, so as to ensure ccps can continue pooling risks in a safe and efficient way. in recent months, concerns have been expressed regarding the adequacy and consistency of the level of risk management across the ccp landscape