Credit Derivatives: Systemic Risks and Policy Options?

Author/Editor:

John Kiff ; Jennifer A. Elliott ; Elias G. Kazarian ; Jodi G. Scarlata ; Carolyne Spackman

Publication Date:

November 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Credit derivative markets are largely unregulated, but calls are increasingly being made for changes to this "hands off" stance, amidst concerns that they helped to fuel the current financial crisis, or that they could be a cause of the next one. The purpose of this paper is to address two basic questions: (i) do credit derivative markets increase systemic risk; and (ii) should they be regulated more closely, and if so, how and to what extent? The paper begins with a basic description of credit derivative markets and recent events, followed by an assessment of their recent association with systemic risk. It then reviews and evaluates some of the authorities' proposed initiatives, and discusses some alternative directions that could be taken.

Series:

Working Paper No. 2009/254

Subject:

Central counterparty clearing house Credit Credit default swap Credit risk Derivative markets

English

Publication Date:

November 1, 2009

ISBN/ISSN:

9781451874006/1018-5941

Stock No:

WPIEA2009254

Pages:

35

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