Systemic Risk From Global Financial Derivatives

Author : Ms.Sheri M. Markose
Publisher : International Monetary Fund
Page : 58 pages
File Size : 51,5 Mb
Release : 2012-11-30
Category : Business & Economics
ISBN : 9781475577501

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Systemic Risk from Global Financial Derivatives by Ms.Sheri M. Markose Pdf

Financial network analysis is used to provide firm level bottom-up holistic visualizations of interconnections of financial obligations in global OTC derivatives markets. This helps to identify Systemically Important Financial Intermediaries (SIFIs), analyse the nature of contagion propagation, and also monitor and design ways of increasing robustness in the network. Based on 2009 FDIC and individually collected firm level data covering gross notional, gross positive (negative) fair value and the netted derivatives assets and liabilities for 202 financial firms which includes 20 SIFIs, the bilateral flows are empirically calibrated to reflect data-based constraints. This produces a tiered network with a distinct highly clustered central core of 12 SIFIs that account for 78 percent of all bilateral exposures and a large number of financial intermediaries (FIs) on the periphery. The topology of the network results in the “Too- Interconnected-To-Fail” (TITF) phenomenon in that the failure of any member of the central tier will bring down other members with the contagion coming to an abrupt end when the ‘super-spreaders’ have demised. As these SIFIs account for the bulk of capital in the system, ipso facto no bank among the top tier can be allowed to fail, highlighting the untenable implicit socialized guarantees needed for these markets to operate at their current levels. Systemic risk costs of highly connected SIFIs nodes are not priced into their holding of capital or collateral. An eigenvector centrality based ‘super-spreader’ tax has been designed and tested for its capacity to reduce the potential socialized losses from failure of SIFIs.

Author : Aron Gottesman,Michael Leibrock
Publisher : John Wiley & Sons
Page : 277 pages
File Size : 49,9 Mb
Release : 2017-06-26
Category : Business & Economics
ISBN : 9781119348504

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Understanding Systemic Risk in Global Financial Markets by Aron Gottesman,Michael Leibrock Pdf

An accessible and detailed overview of the risks posed by financial institutions Understanding Systemic Risk in Global Financial Markets offers an accessible yet detailed overview of the risks to financial stability posed by financial institutions designated as systemically important. The types of firms covered are primarily systemically important banks, non-banks, and financial market utilities such as central counterparties. Written by Aron Gottesman and Michael Leibrock, experts on the topic of systemic risk, this vital resource puts the spotlight on coherency, practitioner relevance, conceptual explanations, and practical exposition. Step by step, the authors explore the specific regulations enacted before and after the credit crisis of 2007-2009 to promote financial stability. The text also examines the criteria used by financial regulators to designate firms as systemically important. The quantitative and qualitative methods to measure the ongoing risks posed by systemically important financial institutions are surveyed. A review of the regulations that identify systemically important financial institutions The tools to use to detect early warning indications of default A review of historical systemic events their common causes Techniques to measure interconnectedness Approaches for ranking the order the institutions which pose the greatest degree of default risk to the industry Understanding Systemic Risk in Global Financial Markets offers a must-have guide to the fundamentals of systemic risk and the key critical policies that work to reduce systemic risk and promoting financial stability.

Author : Michael R. Darby
Publisher : Unknown
Page : 48 pages
File Size : 54,6 Mb
Release : 1994
Category : Derivative securities
ISBN : UVA:X002609971

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Over-the-counter Derivatives and Systemic Risk to the Global Financial System by Michael R. Darby Pdf

Over the last decade dealing in derivative financial instruments (basically forwards, futures, options and combinations of these), particularly in the over-the-counter (OTC) derivatives market has become a central activity for major wholesale banks and financial institutions. Measured in terms of notional principal amount, OTC derivatives outstanding are near, if not greater than, US$10 trillion, even after deduction of double-counting for intra-dealer transactions. Major new regulatory initiatives, including proposed new capital requirements, are under consideration as a means of reducing systemic risk. This paper examines the concept of systemic risk -- that failure of one firm will lead to the failure of a large number of other firms or indeed the collapse of the international financial system. Alternative proposed definitions are considered and integrated and the effects of OTC derivatives on these risks discussed. The key conclusion is that systemic risk has been reduced by the development of the OTC derivatives market due to shifting economic risks to those better able either to bear the risk or, in many cases, cancel it against offsetting risks. The implications of the Basle II capital proposals for systemic risk are analyzed and shown to increase this risk due to encouraging transactions which increase portfolio risks of the dealers and discouraging transactions which decrease their portfolio risk.

Author : Edward LiPuma,Benjamin Lee
Publisher : Duke University Press
Page : 228 pages
File Size : 43,7 Mb
Release : 2004-09-29
Category : Business & Economics
ISBN : 0822334186

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Financial Derivatives and the Globalization of Risk by Edward LiPuma,Benjamin Lee Pdf

DIVCultural studies exploration of the implications of the circulation of increasingly abstract forms of capital in the contemporary global economy./div

Author : Maximilian A. Killinger
Publisher : GRIN Verlag
Page : 22 pages
File Size : 46,5 Mb
Release : 2010-01-11
Category : Business & Economics
ISBN : 9783640507221

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The Power of Derivatives in the Global Financial System by Maximilian A. Killinger Pdf

Seminar paper from the year 2009 in the subject Economics - Monetary theory and policy, grade: A, City University London, language: English, abstract: This work is to discuss the role and power of derivatives in the global financial markets and their ability to reduce, diversify and enhance risks associated with international capital flows. During the last two decades derivatives, as fiscal instruments, experienced enormous growth and gained increasingly of importance. This is mainly due to their ability to allow the spreading of risks in cross border capital movements, making such investments more appealing and the diversification of portfolios more likely. Yet, derivative markets are controversial because they are not well known outside a small group of specialists. Most people look at them with suspicion and focus on their role as highly effective instruments for speculation. Given the leverage they provide fortunes can be made or lost in the wink of an eye. Although derivatives do not create anything it will be shown in the course of this study that the importance of derivatives lies in the fact that they can be used to reduce, diversify and control uncertainty and risks associated with various corporate activities, thus creating substantial benefits as well as complexities. Section one is going to define the most common derivative products before addressing their general purpose followed by exemplifying two principal risks aligned with the use of derivatives, namely credit- and market risk. Subsequently this works is going to discuss the positive as well as the negative effects derivatives may have on banks and investors. Sections five, six and seven will then illuminate systematic predicaments, address risks and eventually conclude after having considered the entanglement and market share of derivatives. Warren Buffett, Forbes-listed as the richest person in the world, has called credit derivatives financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal. Nominally they are insurances against defaults, but they encourage greater gambles and credit expansion, which are moral hazards whereas Alan Greenspan, on the other hand, observed that derivatives have come to play an exceptionally important role in our financial system and in our economy. These instruments allow users to unbundle risks and allocate them to the investors most willing and able to use them. It is this study’s object to illuminate the complexity of derivatives and exemplify both, their advantageous and unfavourable but yet undeniably powerful characteristics.

Author : Mr.Manmohan Singh
Publisher : International Monetary Fund
Page : 17 pages
File Size : 45,6 Mb
Release : 2010-04-01
Category : Business & Economics
ISBN : 9781451982763

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Collateral, Netting and Systemic Risk in the OTC Derivatives Market by Mr.Manmohan Singh Pdf

To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.

Author : David Murphy
Publisher : Springer
Page : 315 pages
File Size : 49,5 Mb
Release : 2013-08-07
Category : Business & Economics
ISBN : 9781137293862

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OTC Derivatives: Bilateral Trading and Central Clearing by David Murphy Pdf

After the credit crisis, supervisors enacted a range of financial reforms. In particular, they radically changed the nature of the OTC derivatives market via a number of measures, notably mandatory central clearing. This book discusses the market before the crisis, explains what central clearing is, and outlines the consequences of the new rules.

Author : Mr.R. Sean Craig,Mr.Burkhard Drees,Mr.Charles Frederick Kramer,Mr.Garry J. Schinasi
Publisher : INTERNATIONAL MONETARY FUND
Page : 0 pages
File Size : 46,6 Mb
Release : 2001-01-09
Category : Business & Economics
ISBN : 1557759995

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Modern Banking and OTC Derivatives Markets by Mr.R. Sean Craig,Mr.Burkhard Drees,Mr.Charles Frederick Kramer,Mr.Garry J. Schinasi Pdf

This chapter provides an overview of market practices, market structure, and official supervision and regulation in financial markets. This paper also highlights the key features of modern banking and over the counter (OTC) derivatives markets that seem to be relevant for assessing their functioning, their implications for systemic financial risks in the international financial system, and areas where improvements in ensuring financial stability can be obtained. The paper also describes how OTC derivatives activities have transformed modern financial intermediation and discusses how internationally active financial institutions have become exposed to additional sources of instability because of their large and dynamic exposures to the counterparty (credit) risks embodied in their OTC derivatives activities. In order to rebalance private and official roles, it is essential first to clarify the limits to market discipline in OTC derivatives markets, before leaning more heavily on aspects of market discipline that seem to work well in these markets.

Author : Alexandra G. Balmer
Publisher : Edward Elgar Publishing
Page : 256 pages
File Size : 52,7 Mb
Release : 2018-06-29
Category : Law
ISBN : 9781788111928

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Regulating Financial Derivatives by Alexandra G. Balmer Pdf

This book puts forward a holistic approach to post-crisis derivatives regulation, providing insight into how new regulation has dealt with the risk that OTC derivatives pose to financial stability. It discusses the implications that post crisis regulation has had on central counterparties and the risk associated with clearing of OTC derivatives. The author offers a novel solution to tackle the potential negative externalities from the failure of a central counterparty and identifies potential new risks arising from post crisis reforms.

Author : Jean-Pierre Fouque,Joseph A. Langsam
Publisher : Cambridge University Press
Page : 993 pages
File Size : 43,5 Mb
Release : 2013-05-23
Category : Business & Economics
ISBN : 9781107023437

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Handbook on Systemic Risk by Jean-Pierre Fouque,Joseph A. Langsam Pdf

The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.

Author : Mert Ozenay
Publisher : GRIN Verlag
Page : 85 pages
File Size : 50,7 Mb
Release : 2019-05-15
Category : Business & Economics
ISBN : 9783668938991

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Assessment of post-GFC derivative regulations and impact of new processes and technologies in the financial derivatives sector by Mert Ozenay Pdf

Seminar paper from the year 2019 in the subject Economics - Finance, , language: English, abstract: The year 2008 marks one of the worst financial crises since the Great Depression. This market crisis has caused a paradigm shift in the global financial and capital markets. During the period between 2008 and 2012, a number of complications were seen in the markets, ultimately leading to a collapse of many institutions. Credit risk and complex securitized products were priced incorrectly and insufficient risk management functions amplified the scale of risks transmitted within multiple channels across the global markets. This paper addresses these developments and explores the current state of regulatory convergence. It furthermore seeks to understand the optimum level of regulatory convergence in the derivatives market and evaluates the developments in the global derivative markets. The primary focus is not on critically evaluating the highly technical aspects of regulatory developments but rather on assessing the practical outcomes derived from such changes. In addition, this paper also seeks to find an answer to achieve transformative changes by setting effective policies across the EU and the US derivatives landscape. This paper is furthermore focused on the more recent technological advancements which have a direct impact on derivative trading activities. Taking into consideration that innovation has tended to outpace regulation throughout history, it attempts to answer the question of regulating two selected innovations: smart derivative contracts and derivative security tokens.

Author : Froukelien Wendt
Publisher : International Monetary Fund
Page : 25 pages
File Size : 43,8 Mb
Release : 2015-01-27
Category : Business & Economics
ISBN : 9781475572933

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Central Counterparties by Froukelien Wendt Pdf

Central counterparties (CCPs) can offer significant benefits to a market. However, CCPs are also highly interconnected with financial institutions and markets and therefore too important to fail. The increased volumes cleared through CCPs and their increasing global scope, in particular in the OTC derivatives market, make it even more important that systemic risks related to CCPs are managed. This paper argues that the current set of international policy measures does partly address these risks, but that alternative policy measures are needed to reduce remaining systemic risks. For example, the paper recommends network analysis to be conducted by CCPs and authorities to gauge potential losses and suggests a common international approach to central bank services to help reduce the dependency of CCPs on services provided by commercial banks.

Author : Ms.Jennifer A. Elliott,Mr.John Kiff,Mr.Elias G. Kazarian,Jodi G. Scarlata,Carolyne Spackman
Publisher : International Monetary Fund
Page : 37 pages
File Size : 50,7 Mb
Release : 2009-11-01
Category : Business & Economics
ISBN : 9781451874006

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Credit Derivatives by Ms.Jennifer A. Elliott,Mr.John Kiff,Mr.Elias G. Kazarian,Jodi G. Scarlata,Carolyne Spackman Pdf

Credit derivative markets are largely unregulated, but calls are increasingly being made for changes to this "hands off" stance, amidst concerns that they helped to fuel the current financial crisis, or that they could be a cause of the next one. The purpose of this paper is to address two basic questions: (i) do credit derivative markets increase systemic risk; and (ii) should they be regulated more closely, and if so, how and to what extent? The paper begins with a basic description of credit derivative markets and recent events, followed by an assessment of their recent association with systemic risk. It then reviews and evaluates some of the authorities' proposed initiatives, and discusses some alternative directions that could be taken.

Author : United States. Congress. House. Committee on Energy and Commerce. Subcommittee on Telecommunications and Finance
Publisher : Unknown
Page : 356 pages
File Size : 47,9 Mb
Release : 1994
Category : Business & Economics
ISBN : STANFORD:36105063133644

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Derivative Financial Markets by United States. Congress. House. Committee on Energy and Commerce. Subcommittee on Telecommunications and Finance Pdf

Author : Sugat Bajracharya
Publisher : GRIN Verlag
Page : 37 pages
File Size : 42,5 Mb
Release : 2011-10
Category : Business & Economics
ISBN : 9783656019794

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Are Derivatives the Cause of a Financial Crisis? by Sugat Bajracharya Pdf

Research Paper (postgraduate) from the year 2009 in the subject Business economics - Economic Policy, Eastern Illinois University, language: English, abstract: This paper looks into the pros and cons of financial derivatives while at the same time glancing into past derivative-related crisis to explore the dangers of financial derivatives. It also seeks to explore and investigate the role of credit default swaps in the recent credit crisis. Overall, the paper seeks to analyze the current economic situation and past events to see if financial derivatives are the cause of a financial crisis.