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Counterparty Risk, Impacton Collateral Flows and Role for Central Counterparties
Author:
James Aitken null

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Mr. Manmohan Singh
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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 173
Language:
English
Publication Date:
01 Aug 2009
DOI:
https://doi.org/10.5089/9781451873207.001
ISBN:
9781451873207
ISSN:
1018-5941
Pages:
15
Keywords:
WP; derivative; risk; counterparty risk; market; central counterparty; Large Complex Financial Institutions; OTC derivatives; Collateral Flow; Central Counterparties; OTC derivative; derivative activity; derivatives receivables; equity derivative; derivatives payables; derivatives payables position; derivative deal; commodity derivative; derivative obligation; derivative buyer; Collateral; Currencies; International liquidity; Derivative markets; Central counterparty clearing house; Global
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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund