@article{Settlement:683,
      recid = {683},
      author = {Engert, Walter},
      title = {Certainty of Settlement and Loss Allocation with a Minimum  of Collateral},
      publisher = {Bank of Canada},
      address = {1993},
      pages = {1 online resource (vi, 27 pages)},
      abstract = {To assure liquidity needs and the robustness of loss  allocation in a clearing and settlement system based on  netting, collateral requirements and net debit caps could  be set in a specific, interrelated way. For instance, it  has been advocated that system participants collateralize a  predetermined fraction of the largest credit line that they  extend within the system, and that net debit caps be set  equal to the sum of the credit lines that participants  receive multiplied by the same fraction. This paper shows  how this approach will assure sufficient liquidity for  daily settlement to occur in the event of the default of  any participant in the system. The paper also examines the  degree to which the collateral would cover each  participant’s obligations under the loss allocation rule.  The paper then shows how this approach to collateral  requirements and net debit caps can lead to excess  collateral in the system. It suggests ways to reduce  collateral to a minimum, while securing liquidity needs and  the robustness of loss allocation. In addition, an  arrangement is outlined that would allow a given stock of  collateral to simultaneously secure a survivors-pay net  debit cap and a defaulter-pays net debit cap in a clearing  and settlement system. Finally, the paper shows that  maximizing the capacity of a clearing and settlement system  with both defaulter-pays and survivors-pay segments  requires that a participant use its survivors-pay segment  before using its defaulter-pays segment.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/683},
      doi = {https://doi.org/10.34989/swp-1993-14},
}