A transparency standard for derivatives

Viral Acharya

Financial Stability Review, 2013, issue 17, 81-89

Abstract: Derivatives exposures across large financial institutions often contribute to – if not necessarily create – systemic risk. Current reporting standards for derivatives exposures are nevertheless inadequate for assessing these systemic risk contributions. In this paper, the author explains how a transparency standard, in contrast to the current standard, would facilitate such risk analysis. He also demonstrates that such a standard is implementable by providing examples of existing disclosures from large dealer firms in their quarterly filings. These disclosures often contain useful firm-level data on derivatives, but due to a lack of standardisation, they cannot be aggregated to assess the risk to the system. He highlights the important contribution that reporting the “margin coverage ratio”, namely the ratio of a derivatives dealer’s cash (or liquidity, more broadly) to its contingent collateral or margin calls in case of a significant downgrade of its credit quality, could make toward assessing systemic risk contributions.

Date: 2013
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Citations: View citations in EconPapers (6)

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Related works:
Chapter: A Transparency Standard for Derivatives (2012)
Working Paper: A Transparency Standard for Derivatives (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:fisrev:2011:17:08

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