Institutional developments in the globalization of securities and futures markets

Futures ; International finance

Procyclicality and Fair Value Accounting

In light of the uncertainties about valuation highlighted by the 2007-2008 market turbulence, this paper provides an empirical examination of the potential procyclicality that fair value accounting (FVA) could introduce in bank balance sheets. The paper finds that, while weaknesses in the FVA methodology may introduce unintended procyclicality, it is still the preferred framework for financial institutions. It concludes that capital buffers, forward-looking provisioning, and more refined disclosures can mitigate the procyclicality of FVA. Going forward, the valuation approaches for accounting, prudential measures, and risk management need to be reconciled and will require adjustments on the part of all parties.Financial institutions;Bank accounting;Bank supervision;Economic models;financial statements, financial stability, financial instruments, banking, bank balance sheets, probability of default, stock market, financial assets, investment bank, stock market index, banks ? balance sheets, capital adequacy, present value, accounting framework, hedge, accounting standard, bank capital, banking supervision, valuation of assets, bank for international settlements, financial markets, cash flows, hedge accounting, financial market, net present value, financial system, bonds, credit policy, hedging, bank of spain, banks ? balance sheet, derivative, capital base, cash flow, equity capital, accounting treatment, valuation of debt securities, discount rate, retail bank, discounted cash flows, bank behavior, banking industry, equity shares, credit derivatives, return on equity, valuation of liabilities, cash flow statements, stock market cycle, bank losses, off balance sheet, capital adequacy ratio, financial instability, bank equity, income statement, liquid markets, asset valuation, credit derivative, adequate disclosure, financial economics, accounting principle, bank supervisors

Credit Derivatives

Credit derivative markets are largely unregulated, but calls are increasingly being made for changes to this "hands off" stance, amidst concerns that they helped to fuel the current financial crisis, or that they could be a cause of the next one. The purpose of this paper is to address two basic questions: (i) do credit derivative markets increase systemic risk; and (ii) should they be regulated more closely, and if so, how and to what extent? The paper begins with a basic description of credit derivative markets and recent events, followed by an assessment of their recent association with systemic risk. It then reviews and evaluates some of the authorities'' proposed initiatives, and discusses some alternative directions that could be taken.Financial stability;Asset management;Credit risk;Financial instruments;Securities regulations;derivative, credit derivatives, derivative markets, credit derivative, bonds, investors, financial statements, derivative transactions, bond, derivatives markets, financial markets, margin requirements, risk exposure, hedge, commodity futures, derivatives transactions, derivative instruments, disclosure requirements, equity derivative, regulatory framework, cash flows, derivative contracts, prudential regulation, financial derivatives, bondholders, open interest, physical bonds, derivatives transaction, hedge funds, hedging, subordinated debt, derivatives market, financial futures, futures trading, exchange traded derivatives, derivative market, cash bonds, insider trading, financial institutions, equity derivatives, international financial futures, derivative products, trust company, financial resources, financial sector, derivative assets, interest rate derivatives, financial services, otc transactions, financial market, senior bondholders, equity capital, government bonds, accrued interest, financial assets, futures markets, credit risks, derivative contract, credit markets, corporate bonds, financial regulation