RCR - Regulatory Capital Reserve
RCR is a special version of KLF insurance structure, developed especially for Central CounterParties (CCP) and Financial Institutions (FI) in general
Insurance cover provides management und authorities enough time to implement lasting solutions or regulatory measures
In contrast to non-financial corporations (NFC), CCP and FI have to hold liquidity and capital reserves mandatorily
In case of market disruption/volatility spikes, out flowing liquidity and heightened collateral demand tighten liquidity ratio and potentially capital ratio as well
Base version of KLF allows CCP and FI to manage liquidity ratio more cost efficient, even in a strained financial market environment, same as non-financial corporations (NFC)
Additionally, RCR version allows CCP and FI to manage capital ratio, independent of public market access
To be most efficient, liquidity/collateral standard (initial and variation margin in case of CCP) and capital ratio/countercyclical buffers should be rule based, according to Federal Reserve Bank of Cleveland
Therefore, only foreseeable and quantifiable risks can be addressed adequately
KLF as well as RCR covers all kind of liquidity and capital short-fall risks, quantifiable and latent - in real-time - 24/7/365
Base version of RCR can be executed within existing rules & regulation
CCP-bank nexus BIS is warning about is loosened, risk of financial markets spill-over getting out of control following endogenous or exogenous shock is mostly addressed