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What Is the Role of a “Clearing House” in Mitigating Systemic Risk?

Central Intermediary. Guarantees Contract Performance. $downarrow$ Counterparty Risk 83.
Greeks.Live18.11.25

What Is the Role of a “Clearing House” in Mitigating Systemic Risk?

A Clearing House acts as a central intermediary for financial transactions, becoming the buyer to every seller and the seller to every buyer (novation). It guarantees the performance of contracts, standardizes collateral requirements, and manages the Mark-to-Market process.

This centralization and guarantee significantly reduce counterparty risk and and thus help contain systemic risk.

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