The New Danger From Derivatives

... regulators have turned to a time-honored tool: the clearing house, which stands in the middle of trades and gathers collateral from all its members. The U.S. has already moved most derivatives contracts to central clearing, and Europe is following. Clearing houses will play an increasingly important role in containing systemic risk, setting limits on leverage for banks, hedge funds and other investors.

However, clearing houses present a risk of their own. If a crisis triggers defaults that overwhelm the posted collateral, they have little capital of their own to absorb losses... The clearing houses are too important to fail, and the current rules governing their risk management are too lax. Guaranty funds must cover at least two major defaults, but clearing houses are allowed to decide how much cash that actually requires -- and how much capital their shareholders should pitch in to absorb the first losses. The size of this shareholder contribution matters a lot, because the fear of loss is an incentive to be prudent in setting collateral requirements in the first place.