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BillsBest: $648 Trillion Derivatives Market Faces New Collateral Concentration Risks
Posted By: CGI_admin [Send E-Mail]
Date: Tuesday, 11-Sep-2012 12:48:26
From CGI's BillsBest:
09/11/2012 09:22 -0400
In a sad case of deja vu all over again, the over-reliance on 'shaky' collateral and concentration of risk is building once more - this time in the $648 trillion derivatives market. New Clearing House rules (a la Dodd-Frank) mean derivatives counterparties are required to pledge high quality collateral with the clearing houses (or exchanges) in a more formalized manner to cover potential losses.
However, the safety bid combined with Central Banks monetization of every sovereign risk asset onto their balance sheet has reduced the amount of quality collateral available; this scarcity of quality collateral creates liquidity problems. The dealers, ever willing to create fee-based business, have created a repo-like program to meet the needs of the desperate derivative counterparties - to enable them to transform lower-quality collateral into high quality collateral - which can then be posted to the clearing house or exchange. More>>
http://chasvoice.blogspot.com/2012/09/648-trillion-derivatives-market-faces.html
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