Abstract 

This paper investigates systemic risk of bank holding companies (BHCs) following the enactment of mandatory clearing of derivatives by the Dodd–Frank Act. We find that BHCs that were bigger users of derivatives experienced a larger drop in systemic risk contributions after mandatory clearing, all else being equal. This relationship holds across different measures of systemic risk and across several robustness checks that account for potential endogeneity and self-selection bias, including data mining through high-dimensional methods. Overall, our results suggest that derivatives clearing can curtail systemic risk in the banking system.