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Credit Derivatives; Systemic Risks and Policy Options?

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

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

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Length: 35
Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/254
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  1. 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.
  2. Jean Helwege & Samuel Maurer & Asani Sarkar & Yuan Wang, 2009. "Credit default swap auctions," Staff Reports 372, Federal Reserve Bank of New York.
  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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