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The Impact of Unanticipated Defaults in Canada's Large Value Transfer System

  • Darcey McVanel
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    Canada's Large Value Transfer System (LVTS) is designed to meet international risk-proofing standards at a minimum cost to participants in terms of collateral requirements. It does so, in part, through collateralized risk-sharing arrangements whereby participants may incur losses if another participant defaults. The LVTS is designed to be robust to defaults. Its rules, however, do not ensure that individual participants are robust to defaults. The author studies participants' robustness to default empirically by creating unanticipated defaults in LVTS, and finds that all participants are able to withstand their loss allocations that result from the largest defaults she can create using actual LVTS data.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp05-25.pdf
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    Paper provided by Bank of Canada in its series Working Papers with number 05-25.

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    Length: 34 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:bca:bocawp:05-25
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    1. Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 853-868, June.
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