Transparency and collateral: central versus bilateral clearing

Gaetano Antinolfi, Francesca Carapella, Francesco Carli

Research output: Working paper


Bilateral financial contracts typically require an assessment of counterparty risk. Central clearing of these financial contracts allows market participants to mutualize their counterparty risk, but this insurance may weaken incentives to acquire and to reveal information about such risk. When considering this trade-off, participants would choose central clearing if information acquisition is incentive compatible. If it is not, they may prefer bilateral clearing, when this choice prevents strategic default while economizing on costly collateral. In either case, participants independently choose the efficient clearing arrangement. Consequently, central clearing can be socially inefficient under certain circumstances. These results stand in contrast to those in Achary and Bisin (2014), who find that central clearing is always the optimal clearing arrangement.
Original languageEnglish
PublisherFederal Reserve Board of Governors
Publication statusPublished - Mar 2018
Externally publishedYes

Publication series

NameFinance and Economics Discussion Series
ISSN (Print)1936-2854


  • Central counterparties
  • Collateral
  • Limited Commitment


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