This paper provides a means of estimating how ‘Solvency II' regulations — introduced in the European Union in January 2016 — might affect UK life insurers' incentives to hold different types of financial assets, and how these asset holdings are likely to vary in the face of hypothetical...

We quantify the size of a fire-sale externality in the derivatives market in the absence of a macroprudential buffer on top of microprudential initial margin requirements. We show how this varies over the financial cycle with market volatility. We then assess the ability of a macroprudential...

A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of...

The requirement to post initial margin on derivatives transactions is a key feature of the post-crisis reforms of the OTC derivatives markets. Initial margin requirements are usually determined by risk-based models. These models typically require increased margin in stressed conditions: they are...

We investigate whether margin calls on derivative counterparties could exceed their available liquid assets and, by preventing immediate payment of the calls, spread such liquidity shortfalls through the market. Using trade repository data on derivative portfolios, we simulate variation margin...

This paper analyses how the risk-sharing capacity of the financial system varies over the business cycle, leading to procyclical fragility. We show how financial imperfections contribute to underinsurance by entrepreneurs, generating an externality that leads to the build-up of systematic risk...

Following a period of relative calm, many derivative users received large margin calls as financial market volatility spiked amid the onset of the Covid‑19 global pandemic in March 2020. This reinvigorated the policy debate about dampening such ‘procyclicality’ of margin requirements. In...

More widespread central clearing could enhance dealers’ ability to intermediate financial markets by increasing the netting of buy and sell trades, thereby reducing the impact of trading on balance sheets and capital ratios. Drawing on trade‑level regulatory data, we study the netting...