The Anatomy of the Euro Area Interest Rate Swap Market

60 Pages Posted: 8 Aug 2019

See all articles by Silvia Dalla Fontana

Silvia Dalla Fontana

USI Lugano; Swiss Finance Institute

Marco Holz auf der Heide

European Central Bank (ECB)

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Ca Foscari University of Venice

Martin Scheicher

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2019

Abstract

Using a novel regulatory dataset of fully identified derivatives transactions, this paper provides the first comprehensive analysis of the structure of the euro area interest rate swap (IRS) market after the start of the mandatory clearing obligation. Our dataset contains 1.7 million bilateral IRS transactions of banks and non-banks. Our key results are as follows:

1) The euro area IRS market is highly standardised and concentrated around the group of the G16 Dealers but also around a significant group of core "intermediaries"(and major CCPs).

2) Banks are active in all segments of the IRS euro market, whereas non-banks are often specialised.

3) When using relative net exposures as a proxy for the "flow of risk" in the IRS market, we find that risk absorption takes place in the core as well as the periphery of the network but in absolute terms the risk absorption is largely at the core.

4) Among the Basel III capital and liquidity ratios, the leverage ratio plays a key role in determining a bank's IRS trading activity.

Keywords: OTC derivatives, network analysis, interest rate risk, banking, risk management, hedging

JEL Classification: G21, E43, E44

Suggested Citation

Dalla Fontana, Silvia and Holz auf der Heide, Marco and Pelizzon, Loriana and Scheicher, Martin, The Anatomy of the Euro Area Interest Rate Swap Market (June 2019). SAFE Working Paper No. 255, 2019. Available at SSRN: https://ssrn.com/abstract=3431052 or http://dx.doi.org/10.2139/ssrn.3431052

Silvia Dalla Fontana

USI Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Marco Holz auf der Heide

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Martin Scheicher

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 (Phone)
+49 69 1344 7949 (Fax)

HOME PAGE: http://www.ecb.europa.eu

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