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The CCP-bank nexus in the time of Covid-19

During the Covid-19-induced financial turbulence, central counterparties (CCPs) issued large margin calls, weighing on the liquidity of clearing member banks. In spite of the turbulence, CCPs remained resilient, as intended by the post-crisis reforms of financial market infrastructures. Higher margins should be expected during heightened turbulence, but the extent of the procyclicality of margining is the consequence of various design choices. Systemic considerations call to examine the nexus between banks and CCPs. Therefore, when thinking about margining, central banks need to assess banks and CCPs jointly rather than in isolation.