The Stability of the Banking Sector and Credit Default Swaps

The credit default swap market has experienced an exponential growth in recent decades. Though the fırst credit default swap contract was negotiated in the mid-1990s, the market has enjoyed a surge of popularity beginning in 2003. By the end of June 2013, the outstanding amount reached 24.3 trillion dollars. It is mostly used to transfer or to hedge credit risk. Concurrently with the global credit crisis, several shortcomings in CDS markets have appeared. One of the obvious questions is whether they affect the stability of financial markets. In this context after broader exhibition of credit default swaps market, speculative use of CDS, inception of central counterparty, and transparency of CDS market is handled. As a conclusion, it is true that the CDS market still has some weaknesses, but it is no more prone to be destabilizing than other financial instruments. This is shown in this chapter.

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The Rise of Credit Default Swaps and Its Implications on Financial Stability

Handbook of Research on Developing Sustainable Value in Economics, Finance, and Marketing - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-4666-6635-1.ch020 ◽

2015 ◽

pp. 341-354

Author(s):

Fatma Sezer Dural

Keyword(s):

Credit Risk ◽

Exponential Growth ◽

Financial Stability ◽

Credit Default Swap ◽

Credit Default Swaps ◽

Financial Instruments ◽

Credit Crisis ◽

Credit Default ◽

Default Swap ◽

The Stability

The credit default swap market has experienced an exponential growth in recent decades. Though the first credit default swap contract was negotiated in the mid-1990s, the market has enjoyed a surge of popularity beginning in 2003. By the end of June 2013, the outstanding amount reached 24.3 trillion dollars. It is mostly used to transfer or to hedge credit risk. Concurrently with the global credit crisis, several shortcomings in CDS markets have appeared. One of the obvious questions is whether they affect the stability of financial markets. In this context after broader exhibition of credit default swaps market, speculative use of CDS, inception of central counterparty, and transparency of CDS market is handled. As a conclusion, it is true that the CDS market still has some weaknesses, but it is no more prone to be destabilizing than other financial instruments. This is shown in this chapter.

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Pengaruh variabel-variabel di sektor riil dan perbankan terhadap Shock Credit Default Swap (CDS) di Indonesia

e-Journal Perdagangan Industri dan Moneter ◽

10.22437/pim.v7i3.13071 ◽

2019 ◽

Vol 7 (3) ◽

pp. 185-204

Author(s):

Dwi Hastuti ◽

Muhammad Edhie Purnawan ◽

Sunargo Sunargo

Keyword(s):

Banking Sector ◽

Rapid Development ◽

Credit Default Swap ◽

The United States ◽

Credit Default Swaps ◽

Advanced Technology ◽

Global Crisis ◽

Subprime Mortgage ◽

Credit Default ◽

Default Swap

The rapid development of the global financial market today is getting faster and integrated with the existence of advanced technology. Along with economic issues in various worlds, directly related to the global economic crisis that occurred in 2008-2009 greatly influenced the development of credit default swaps (CDS) in developing countries such as Indonesia. The increase in the value of the credit default swap, which carries a high risk of default, will further impact investor confidence and weaken the exchange rate. This is reflected in the shocks of the global crisis and the subprime mortgage prime in the United States. However, the onset of a global crisis can be early with early indicators of crisis from credit default swaps so that crisis management can be carried out faster. The results of this study indicate that the credit default swap is responded to faster by the banking sector than the real sector. Keywords: Financial crises, Credit Default Swap (CDS), Riil and banking sector

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The Systemic Effects of Prudential Regulation Toughening:The Results of a Stress-test for Russian Banks

Voprosy Ekonomiki ◽

10.32609/0042-8736-2012-8-4-31 ◽

2012 ◽

pp. 4-31 ◽

Cited By ~ 1

Author(s):

M. Mamonov ◽

A. Pestova ◽

O. Solntsev

Keyword(s):

Financial Services ◽

Banking Sector ◽

Stress Test ◽

Credit Market ◽

Capital Adequacy ◽

Government Support ◽

Government Ownership ◽

Prudential Regulation ◽

The Government ◽

The Stability

The stability of Russian banking sector is threatened by three negative tendencies - overheating of the credit market, significant decrease of banks capital adequacy ratios, and growing problems associated with banks lending to affiliated non-financial corporations. The co-existence of these processes reflects the crisis of the model of private investments in Russian banking sector, which was observed during the last 20 years. This paper analyzes the measures of the Bank of Russia undertaken to maintain the stability of the banking sector using the methodology of credit risk stress-testing. Based on this methodology we conclude that the Bank of Russias actions can prevent the overheating of the credit market, but they can also lead to undesirable effects: further expansion of the government ownership in Russian banking sector and substitution of domestic credit supply by cross-border corporate borrowings. The later weakens the competitive positions of Russian banks. We propose a set of measures to harmonize the prudential regulation of banks. Our suggestions rely on design and further implementation of the programs aimed at developing new markets for financial services provided by Russian banks to their corporate and retail customers. The estimated effects of proposed policy measures are both the increase in profitability and capitalization of Russian banks and the decrease of banks demand for government support.

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