Mandatory central clearing and derivatives offsetting
Rong Ding, Chris Florackis, John Ziyang Zhang · Accounting Forum · 2025
Exploiting the adoption of mandatory central clearing by US regulators, we explore the effects of this regulatory reform on banks’ derivatives offsetting. Using a difference-in-differences testing procedure, we find that derivatives offsetting increases (decreases) for banks with higher (lower) capital ratios after the adoption of mandatory central clearing, in comparison with the control group. The results are economically significant and robust to a variety of alternative specifications and tests. Our findings suggest that banks with different target capital ratios respond to central clearing reform differently. These findings may inform regulators and policy makers about the effects of the central clearing reform and its impact on market transparency.