A Transparency Standard for Derivatives
In: Risk Topography: Systemic Risk and Macro Modeling
AbstractDerivatives exposures across large financial institutions often contribute to â if not necessarily create â systemic risk. Current reporting standards for derivatives exposures are nevertheless inadequate for assessing these systemic risk contributions. In this paper, I explain how a transparency standard, in contrast to the current standard, would facilitate such risk analysis. I also demonstrate that such a standard is implementable by providing examples of existing disclosures from large dealer firms in their quarterly filings. These disclosures often contain useful firm-level data on derivatives, but due to a lack of standardization, they cannot be aggregated to assess the risk to the system. I highlight the important contribution that reporting the âmargin coverage ratioâ (MCR), namely the ratio of a derivatives dealerâs cash (or liquidity, more broadly) to its contingent collateral or margin calls in case of a significant downgrade of its credit quality, could make toward assessing systemic risk contributions.
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- G01 - Financial Economics - - General - - - Financial Crises
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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- María Rodríguez-Moreno & Sergio Mayordomo & Juan Ignacio Peña, 2012. "Derivatives Holdings and Systemic Risk in the U.S. Banking Sector," Faculty Working Papers 21/12, School of Economics and Business Administration, University of Navarra.
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