Counterparty Risk in the Over-The-Counter Derivatives Market

November 1, 2008

Preview Citation

Format: Chicago

Manmohan Singh, and Miguel A. Segoviano Counterparty Risk in the Over-The-Counter Derivatives Market, (USA: International Monetary Fund, 2008) accessed December 22, 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

The financial market turmoil of recent months has highlighted the importance of counterparty risk. Here, we discuss counterparty risk that may stem from the OTC derivatives markets and attempt to assess the scope of potential cascade effects. This risk is measured by losses to the financial system that may result via the OTC derivative contracts from the default of one or more banks or primary broker-dealers. We then stress the importance of "netting" within the OTC derivative contracts. Our methodology shows that, even using data from before the worsening of the crisis in late Summer 2008, the potential cascade effects could be very substantial. We summarize our results in the context of the stability of the banking system and provide some policy measures that could be usefully considered by the regulators in their discussions of current issues.

Subject: Banking, Credit, Credit default swap, Derivative markets, Over-the-counter markets

Keywords: Derivative, Financial system, Market, OTC derivatives market, WP

Publication Details

Pages:

19
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2008/258
Stock No:

WPIEA2008258
ISBN:

9781451871166
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers