Financial Derivatives: Harnessing the Benefits and Containing the Dangers
Financial derivatives have harmed or destroyed numerous financial firms, nonfinancial firms, and municipalities in 1994 and 1995. This paper discusses the dangers of derivatives and also their benefits. It then considers policies that will maintain the benefits while containing the risks. These include improving the accounting framework used to disclose derivatives transactions, increasing transparency between dealers and end-users, and reducing legal uncertainties between countries. This paper also argues that the government needs to make a concerted effort to acquire more information concerning the dangers that derivatives trading pose to the financial system. If such a study revealed that the systemic risks are too high, then remedial legislation regulating the safety and soundness of nonbank derivatives dealers would be required. Until such a study is conducted, the government should seek to improve the in-house risk management techniques used by major players in the derivatives market.
|Date of creation:||02 Dec 1998|
|Date of revision:|
|Note:||Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 25; figures: included|
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- Gary Gorton & Richard Rosen, .
"Banks and Derivatives,"
Rodney L. White Center for Financial Research Working Papers
06-95, Wharton School Rodney L. White Center for Financial Research.
- Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," NBER Working Papers 5100, National Bureau of Economic Research, Inc.
- Gary Gorton & Richard Rosen, . "Banks and Derivatives," Rodney L. White Center for Financial Research Working Papers 6-95, Wharton School Rodney L. White Center for Financial Research.
- Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," Center for Financial Institutions Working Papers 95-07, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Gary Gorton & Richard Rosen, 1995. "Banks and derivatives," Working Papers 95-12, Federal Reserve Bank of Philadelphia.
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