The Impact of Derivatives Collateralization on Liquidity Risk: Evidence from the Investment Fund Sector PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download The Impact of Derivatives Collateralization on Liquidity Risk: Evidence from the Investment Fund Sector PDF full book. Access full book title The Impact of Derivatives Collateralization on Liquidity Risk: Evidence from the Investment Fund Sector by Audrius Jukonis. Download full books in PDF and EPUB format.
Author: Audrius Jukonis
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 35
Get Book Here
Book Description
Stricter derivative margin requirements have increased the demand for liquid collateral, but euro area investment funds, which use derivatives extensively, have been reducing their liquid asset holdings. Using transaction-by-transaction derivatives data, we assess whether the current levels of funds’ holdings of cash and other highly liquid assets would be adequate to meet funds’ liquidity needs to cover variation margin calls on derivatives under a range of stress scenarios. The estimates indicate that between 13 percent and 33 percent of euro area funds with sizeable derivatives exposures may not have sufficient liquidity buffers to meet the calls under adverse market shocks. As a result, they are likely to redeem money market fund (MMF) shares, procyclically sell assets, and draw on credit lines, thus amplifying the market dynamics under such stress scenarios. Our findings highlight the importance of further work to assess the potential role of macroprudential policies for nonbanks, particularly regarding liquidity risk in funds.
Author: Audrius Jukonis
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 35
Get Book Here
Book Description
Stricter derivative margin requirements have increased the demand for liquid collateral, but euro area investment funds, which use derivatives extensively, have been reducing their liquid asset holdings. Using transaction-by-transaction derivatives data, we assess whether the current levels of funds’ holdings of cash and other highly liquid assets would be adequate to meet funds’ liquidity needs to cover variation margin calls on derivatives under a range of stress scenarios. The estimates indicate that between 13 percent and 33 percent of euro area funds with sizeable derivatives exposures may not have sufficient liquidity buffers to meet the calls under adverse market shocks. As a result, they are likely to redeem money market fund (MMF) shares, procyclically sell assets, and draw on credit lines, thus amplifying the market dynamics under such stress scenarios. Our findings highlight the importance of further work to assess the potential role of macroprudential policies for nonbanks, particularly regarding liquidity risk in funds.
Author: Dermot Turing
Publisher: International Monetary Fund
ISBN: 1484382404
Category : Business & Economics
Languages : en
Pages : 26
Get Book Here
Book Description
Changes to the regulatory system introduced after the financial crisis include not only mandatory clearing of OTC derivatives at central counterparties and margining of uncleared derivatives, but also prudential measures, including notably a “Liquidity Coverage Ratio” which obliges firms to set aside high-quality liquid assets (HQLA) as a stopgap against anticipated cash outflows. We examine factors which may affect the demand for HQLA in a severely stressed market following a hypothetical default of a major clearing member. Immediately following a major default, the amount of HQLA demanded by the whole market would spike. We estimate the size of the spike and draw conclusions as to whether the depth of the market is adequate to absorb it.
Author:
Publisher: Lulu.com
ISBN: 9291316695
Category : Bank capital
Languages : en
Pages : 294
Get Book Here
Book Description
Author: Mr. Zhongxia Jin
Publisher: International Monetary Fund
ISBN: 1513584847
Category : Business & Economics
Languages : en
Pages : 22
Get Book Here
Book Description
During China’s transition toward a more flexible exchange rate, it is essential to further develop its foreign exchange (FX) derivatives markets to meet the growing hedging needs associated with greater exchange rate fluctuations. Although over-the-counter (OTC) FX derivatives markets already exist in China, it lacks a FX futures market that offers critical complementarities. With standardized products, greater transparency and centralized oversight, a FX futures market can better satisfy the hedging needs of small and medium-sized enterprises and enhance regulatory efficiency. To address concerns regarding whether FX futures market will amplify the volatility of spot exchange rates, this paper analyzes the impact of establishing FX futures markets on spot market volatility using data from major emerging market economies. The result shows that FX futures market is not empirically associated with an increase in spot market volatility; in some cases, it is even associated with a decrease in spot market volatility. This paper further suggests that for a well-functioning FX futures market to be established, it is essential for China to substitute the inefficient documentation requirement of underlying exposures with a new set of market-oriented measures for the purpose of prudent regulation.
Author: Thordur Jonasson
Publisher: International Monetary Fund
ISBN: 1484350545
Category : Business & Economics
Languages : en
Pages : 133
Get Book Here
Book Description
This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.
Author: Audrius Jukonis
Publisher:
ISBN: 9789289954686
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Stricter derivative margin requirements have increased the demand for liquid collateral but euro area investment funds which use derivatives extensively have been reducing their liquid asset holdings. Using transaction-by-transaction derivatives data, we assess whether the current levels of funds' holdings of cash and other highly liquid assets would be adequate to meet funds' liquidity needs to cover variation margin calls on derivatives under a range of stress scenarios. The estimates suggest that between 13% and 33% of euro area funds with sizeable derivatives exposures may not have sufficient liquidity buffers to meet the calls. As a result, they are likely to redeem MMF shares, procyclically sell assets and draw on credit lines, thus amplifying the market dynamics under such stress scenarios. Our findings highlight the importance of further work to assess the potential role of macroprudential policies for non-banks, particularly regarding liquidity risk in funds.
Author: Li L. Ong
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 32
Get Book Here
Book Description
The increasing ability to trade credit risk in financial markets has facilitated its dispersion across the financial and other sectors. However, specific risks attached to credit risk transfer (CRT) instruments in a market with still-limited liquidity means that its rapid expansion may actually pose problems for financial sector stability in the event of a major negative shock to credit markets. This paper attempts to quantify the exposure of major U.K. financial groups to credit derivatives, by applying a vector autoregression (VAR) model to publicly available market prices. Our results indicate that use of credit derivatives does not pose a substantial threat to financial sector stability in the United Kingdom. Exposures across major financial institutions appear sufficiently diversified to limit the impact of any shock to the market, while major insurance companies are largely exposed to the "safer" senior tranches.
Author: Mr.Daniel C. Hardy
Publisher: International Monetary Fund
ISBN: 1498359841
Category : Business & Economics
Languages : en
Pages : 24
Get Book Here
Book Description
A mechanism is proposed that aims to reduce the risk of a banking sector liquidity crisis—which is a quintessentially systemic event and thus the object of macroprudential policy—and moderate the effects of a crisis should one occur. The instrument would give banks more incentive to build up buffers of systemically liquid assets as a proportion of their total liabilities, yet these buffers would be usable in times of stress. The modalities of the instrument are considered with a view to making it effective, efficient, and robust.
Author: John Caramichael
Publisher: International Monetary Fund
ISBN: 1513579010
Category : Business & Economics
Languages : en
Pages : 34
Get Book Here
Book Description
We isolate a U.S. dollar currency premium by comparing corporate bonds issued in the dollar and the euro by firms o utside t he U .S. a nd e uro a rea. We make s everal empirical observations that dissect the perceived advantage of borrowing in the dollar. First, while the dollar dominates global debt issuance, borrowing costs in the dollar are more expensive without a currency hedge and about the same with a currency hedge when compared to the euro. This observed parity in currency-hedged corporate borrowing stands in contrast to the persistent deviation from covered interest parity in risk-free rates. Second, we observe a dollar safety premium in relative hedged borrowing costs, found in the subset of bonds with high credit ratings and short maturities, attributes similar to those of safe sovereigns. Finally, we find that firms flexibly adjust the currency mix of their debt issuance depending on the relative borrowing cost between dollar and euro debt. In sum, the disproportionate demand for U.S. dollar debt is reflected in higher issuance volumes that drive up the currency hedged dollar borrowing costs such that at the margin they equate to euro borrowing costs.
Author: Markus Brunnermeier
Publisher: University of Chicago Press
ISBN: 022609264X
Category : Business & Economics
Languages : en
Pages : 286
Get Book Here
Book Description
The recent financial crisis and the difficulty of using mainstream macroeconomic models to accurately monitor and assess systemic risk have stimulated new analyses of how we measure economic activity and the development of more sophisticated models in which the financial sector plays a greater role. Markus Brunnermeier and Arvind Krishnamurthy have assembled contributions from leading academic researchers, central bankers, and other financial-market experts to explore the possibilities for advancing macroeconomic modeling in order to achieve more accurate economic measurement. Essays in this volume focus on the development of models capable of highlighting the vulnerabilities that leave the economy susceptible to adverse feedback loops and liquidity spirals. While these types of vulnerabilities have often been identified, they have not been consistently measured. In a financial world of increasing complexity and uncertainty, this volume is an invaluable resource for policymakers working to improve current measurement systems and for academics concerned with conceptualizing effective measurement.
