Since the crisis of 2008 banks have reduced their funding through the bilateral interbank segment and increased their recourse to central counterparties (CCPs). CCPs are third parties that stand between two banks to mitigate credit risk. The analysis - which uses micro data on the Italian banking system from 2004 to 2013 - looks at whether the use of CCPs has allowed risky banks to escape the bilateral market discipline.
The results show that both the greater uncertainty on the state of the international economy and the intensified attention to counterparty risk were decisive factors in the growing use of CCPs. The use of CCPs is linked to the loss of long-standing bilateral relationships only for the riskiest banks. These findings support the ongoing effort by national and international regulators to ensure that CCPs continue to have adequate risk control frameworks.
Published in 2021 in: International Journal of Central Banking, v. 17, 1, pp. 231-283
