Cover IMF Working Papers
Buy Book in Print
The Credit Risk Transfer Market and Stability Implications for U.K. Financial Institutions
Author:
Ms. Li L Ong
Search for other papers by Ms. Li L Ong in
Current site
Google Scholar Close
and
Mr. Jorge A Chan-Lau
Search for other papers by Mr. Jorge A Chan-Lau in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 139
Language:
English
Publication Date:
01 Jun 2006
DOI:
https://doi.org/10.5089/9781451863994.001
ISBN:
9781451863994
ISSN:
1018-5941
Pages:
27
Keywords:
WP; credit derivative; market; CRT market
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (283 KB) Download Epub
The increasing ability to trade credit risk in financial markets has facilitated its dispersion across the financial and other sectors. However, specific risks attached to credit risk transfer (CRT) instruments in a market with still-limited liquidity means that its rapid expansion may actually pose problems for financial sector stability in the event of a major negative shock to credit markets. This paper attempts to quantify the exposure of major U.K. financial groups to credit derivatives, by applying a vector autoregression (VAR) model to publicly available market prices. Our results indicate that use of credit derivatives does not pose a substantial threat to financial sector stability in the United Kingdom. Exposures across major financial institutions appear sufficiently diversified to limit the impact of any shock to the market, while major insurance companies are largely exposed to the "safer" senior tranches.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund