Citations (4)



Collateral, Netting and Systemic Risk in the OTC Derivatives Market

Manmohan Singh

International Monetary Fund (IMF)

April 2010

IMF Working Paper No. 10/99

To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.

Number of Pages in PDF File: 16

Keywords: Asset management, Banks, Capital, Capital markets, Credit risk, Financial institutions, Financial instruments, Financial risk, Securities regulations

Open PDF in Browser Download This Paper

Date posted: April 19, 2010  

Suggested Citation

Singh, Manmohan, Collateral, Netting and Systemic Risk in the OTC Derivatives Market (April 2010). IMF Working Papers, Vol. , pp. 1-15, 2010. Available at SSRN: http://ssrn.com/abstract=1590712

Contact Information

Manmohan Singh (Contact Author)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
Feedback to SSRN

Paper statistics
Abstract Views: 2,695
Downloads: 644
Download Rank: 27,695
Citations:  4

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.172 seconds