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A transparency standard for derivatives

  • Acharya, V. V.
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    Derivatives exposures across large financial institutions often contribute to – if not necessarily create – systemic risk. Current reporting standards for derivatives exposures are nevertheless inadequate for assessing these systemic risk contributions. In this paper, the author explains how a transparency standard, in contrast to the current standard, would facilitate such risk analysis. He also demonstrates 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 standardisation, they cannot be aggregated to assess the risk to the system. He highlights the important contribution that reporting the “margin coverage ratio”, namely the ratio of a derivatives dealer’s 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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    File URL: http://www.banque-france.fr/fileadmin/user_upload/banque_de_france/publications/Revue_de_la_stabilite_financiere/2013/rsf-avril-2013/9-ACHARYA_Viral_V.pdf
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    Article provided by Banque de France in its journal Financial Stability Review.

    Volume (Year): (2013)
    Issue (Month): 17 (April)
    Pages: 81-89

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    Handle: RePEc:bfr:fisrev:2011:17:08
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