Derivatives and systemic risk
Subtitle: netting, collateral, and closeout
By: Robert R. Bliss, George Kaufman.
Contributors: Kaufman, George G.; Federal Reserve Bank of Chicago. Research Dept.
Series: Working paper series ;; WP-2005-03; Working paper series (Federal Reserve Bank of Chicago. Research Dept. : Online) ;; WP-2005-03.
Publisher: Federal Reserve Bank of Chicago
Published: 2005
Place of publication: [Chicago, Ill.]
Language: eng
Format: Electronic resource
Subjects: Derivative securities.; Risk management.
Description: "In the U.S., as in most countries with well-developed securities markets, derivative securities enjoy special protections under insolvency resolution laws.  Most creditors are "stayed" from enforcing their rights while a firm is in bankruptcy.  However, many derivatives contracts are exempt from these stays.  Furthermore, derivatives enjoy netting and close-out, or termination, privileges which are not always available to most other creditors.  The primary argument used to motivate passage of legislation granting these extraordinary protections is that derivatives markets are a major source of systemic risk in financial markets and that netting and close- out reduce this risk.  To date, these assertions have not been subjected to rigorous economic scrutiny.  This paper critically reexamines this hypothesis.  These relationships are more complex than often perceived.  We conclude that it is not clear whether netting, collateral, and/or close-out lead to reduced systemic risk, once the impact of these protections on the size and structure of the derivatives market has been taken into account"--Federal Reserve Bank of Chicago web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 9/29/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.