Global Financial Stability Report, April 2006: Market Developments and Issues - Chapter 2: The Influence of Credit Derivative And Structured Credit Markets on Financial Stability

Global Financial Stability Report, May 4, 2006

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Global Financial Stability Report, April 2006: Market Developments and Issues - Chapter 2: The Influence of Credit Derivative And Structured Credit Markets on Financial Stability

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Bibliographic details

• Published: May 4, 2006
• Series: Global Financial Stability Report
• DOI: https://doi.org/10.5089/9781451939194.082

Executive summary / core purpose

• Examines the influence of credit derivative and structured credit markets on financial stability.
• Reviews the growth of the credit derivative market and the factors that have influenced its growth.
• Analyzes how these markets have increasingly facilitated risk transfer.
• Discusses implications for financial stability and presents policy implications and recommendations concerning these relatively new markets and related challenges.

Major findings: market growth and drivers

• Credit derivative and structured credit markets have grown rapidly in size and complexity in recent years.
• Growth has been driven by factors that increased the attractiveness and feasibility of credit derivatives and structured credit instruments (detailed drivers are described in the paper).

Major findings: risk transfer and market functioning

• Credit derivatives and structured credit instruments have increasingly facilitated risk transfer across market participants.
• The development of these markets has implications for how credit risk is allocated among financial institutions, hedge funds, and other market participants.

Implications for financial stability

• The expansion and complexity of credit derivative and structured credit markets carry implications for financial stability (the paper assesses these implications in detail).
• Areas of concern include interactions with bank credit, liquidity and market liquidity, liquidity vulnerability, and the roles of market participants.

Policy implications and recommendations

• The paper presents a discussion of policy implications and recommendations concerning credit derivative and structured credit markets and the regulatory and supervisory challenges they pose.
• Policy themes include oversight of risk transfer, regulation and supervision of market participants, and measures to address liquidity vulnerabilities.

Subject classification and keywords

• Subject: Asset and liability management, Bank credit, Banking, Credit, Credit risk, Financial institutions, Financial regulation and supervision, Hedge funds, Liquidity, Money
• Keywords: Bank credit, cash settlement, CDO tranche market, Credit, credit derivative market, Credit risk, credit risk transfer market, Europe, GFSR, Global, Hedge funds, Liquidity, liquidity vulnerability, market liquidity, market participant, Middle East, risk transfer market, transfer market

References

• https://www.imf.org/en/publications/gfsr
• United Kingdom and the IMF
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• Asset and liability management
• Bank credit
• Banking
• Credit
• Credit risk
• Financial institutions
• Financial regulation and supervision
• Hedge funds
• Liquidity
• Money
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