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Credit Derivatives: Systemic Risks and Policy Options?

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Author Info

  • John Kiff
  • Jennifer A. Elliott
  • Elias G. Kazarian
  • Jodi G. Scarlata
  • Carolyne Spackman

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/254.

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Length: 15
Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/254

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Related research

Keywords: Financial stability; Asset management; Credit risk; Financial instruments; Securities regulations;

This paper has been announced in the following NEP Reports:

References

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  1. Jean Helwege & Samuel Maurer & Asani Sarkar & Yuan Wang, 2009. "Credit default swap auctions," Staff Reports 372, Federal Reserve Bank of New York.
  2. Darrell Duffie, 2009. "Policy Issues Facing the Market for Credit Derivatives," Book Chapters, in: John D. Ciorciari & John Taylor (ed.), The Road Ahead for the Fed, chapter 8 Hoover Institution, Stanford University.
  3. Bliss, Robert R. & Kaufman, George G., 2006. "Derivatives and systemic risk: Netting, collateral, and closeout," Journal of Financial Stability, Elsevier, vol. 2(1), pages 55-70, April.
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Citations

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Cited by:
  1. Neuner, Stefan & Schäfer, Klaus, 2011. "Zentrale Gegenparteien für den außerbörslichen Derivatehandel in der Praxis," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2011-02, University of Bayreuth, Chair of Finance and Banking.
  2. William Lang & Julapa Jagtiani, 2010. "The Mortgage and Financial Crises: The Role of Credit Risk Management and Corporate Governance," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(2), pages 123-144, June.
  3. 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.
  4. Stan Cerulus, 2012. "Central clearing for credit default swaps: A legal analysis of the new central clearing regulations in Europe and the US," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 20(2), pages 212-244, May.
  5. Sorin Gabriel Anton, 2011. "The Local Determinants Of Emerging Market Sovereign Cds Spreads In The Context Of The Debt Crisis. An Explanatory Study "," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 58, pages 41-52, november.

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