LeoGlossary: Clearing Bank

How to get a Hive Account

In financial markets, a clearing bank is one that provides settlement and custody service to different financial institutions operating in that market. This results in the creation of tri-party agreements where the two parties engage the clearing bank to settle.

This is seen in the Repo market in which most transactions are tri-party. In this market Bank of New York Mellon is the custodian who operates as a clearing bank.

There are other services provided by this institution to the market as well as the participants in it.

They are:

  • daily revaluation of assets
  • daily remargining of collateral
  • allocation of collateral to its lender based upon risk tolerance

Basically a clearing bank ensures that the collateral is available to the cash provider even if the dealer defaults.


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