IMF Working Papers

Counterparty Risk, Impacton Collateral Flows and Role for Central Counterparties

By James Aitken, Manmohan Singh

August 1, 2009

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James Aitken, and Manmohan Singh. Counterparty Risk, Impacton Collateral Flows and Role for Central Counterparties, (USA: International Monetary Fund, 2009) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Counterparty risk in the United States stemming from exposures to OTC derivatives payables (after netting) is now concentrated in five banks?Goldman Sachs, JPMorgan, Bank of America, Morgan Stanley and Citi. This note analyzes how such risks have shifted over the past year. We estimate that the adverse impact of counterparty risk on high-grade collateral flows and global liquidity due to decrease in rehypothecation, reduced securities lending, and hoarding of cash by major banks is at least $5 trillion. In order to mitigate counterparty risk, there have been regulatory initiatives to establish central counterparties (CCPs). From a policy perspective, counterparty risk remains large at present and recent experience has shown that OTC derivative positions are not supported by sufficient capital, constituting a major risk for participants in this market.

Subject: Asset and liability management, Banking, Central counterparty clearing house, Collateral, Currencies, Derivative markets, Financial institutions, Financial markets, International liquidity, Money

Keywords: Central Counterparties, Central counterparty, Central counterparty clearing house, Collateral, Collateral Flow, Commodity derivative, Counterparty risk, Currencies, Derivative, Derivative activity, Derivative buyer, Derivative deal, Derivative markets, Derivative obligation, Derivatives payables, Derivatives payables position, Derivatives receivables, Equity derivative, Global, International liquidity, Large Complex Financial Institutions, Market, OTC derivative, OTC derivatives, Risk, WP

Publication Details

  • Pages:

    15

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2009/173

  • Stock No:

    WPIEA2009173

  • ISBN:

    9781451873207

  • ISSN:

    1018-5941

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