The Morning After--The Impact on Collateral Supply After a Major Default

Author/Editor:

Dermot Turing ; Manmohan Singh

Publication Date:

October 31, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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.

Series:

Working Paper No. 18/228

English

Publication Date:

October 31, 2018

ISBN/ISSN:

9781484381922/1018-5941

Stock No:

WPIEA2018228

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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