Counterparty Risk, Impacton Collateral Flows and Role for Central Counterparties
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Summary:
Counterparty risk in the United States stemming from exposures to OTC derivatives payables (after netting) is now concentrated in five banks?Goldman Sachs, JPMorgan, Bank of America, Morgan Stanley and Citi. This note analyzes how such risks have shifted over the past year. We estimate that the adverse impact of counterparty risk on high-grade collateral flows and global liquidity due to decrease in rehypothecation, reduced securities lending, and hoarding of cash by major banks is at least $5 trillion. In order to mitigate counterparty risk, there have been regulatory initiatives to establish central counterparties (CCPs). From a policy perspective, counterparty risk remains large at present and recent experience has shown that OTC derivative positions are not supported by sufficient capital, constituting a major risk for participants in this market.
Series:
Working Paper No. 2009/173
Subject:
Asset and liability management Banking Central counterparty clearing house Collateral Currencies Derivative markets Financial institutions Financial markets International liquidity Money
English
Publication Date:
August 1, 2009
ISBN/ISSN:
9781451873207/1018-5941
Stock No:
WPIEA2009173
Pages:
15
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