NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Transparency Standard for Derivatives

Viral V. Acharya

Chapter in NBER book Risk Topography: Systemic Risk and Macro Modeling (2014), Markus K. Brunnermeier and Arvind Krishnamurthy, editors (p. 83 - 95)
Conference held April 28, 2011
Published in August 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research

Derivatives exposures across large financial institutions often contribute to - if not necessarily create - systemic risk. Current reporting standards for derivatives exposures are nevertheless inadequate for assessing these systemic risk contributions. In this paper, I explain how a transparency standard, in contrast to the current standard, would facilitate such risk analysis. I also demonstrate that such a standard is implementable by providing examples of existing disclosures from large dealer firms in their quarterly filings. These disclosures often contain useful firm-level data on derivatives, but due to a lack of standardization, they cannot be aggregated to assess the risk to the system. I highlight the important contribution that reporting the "margin coverage ratio" (MCR), namely the ratio of a derivatives dealer's cash (or liquidity, more broadly) to its contingent collateral or margin calls in case of a significant downgrade of its credit quality, could make toward assessing systemic risk contributions.

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This paper was revised on February 3, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

This chapter first appeared as NBER working paper w17558, A Transparency Standard for Derivatives, Viral V. Acharya
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