BIS: OTC Derivatives Market Value Falls

The Bank for International Settlements (BIS) sent me this new article link in their regular email update. It provides the latest information they have on the OTC derivatives market. They note a significant drop in this market value.

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"In the first half of 2017, the notional amount of outstanding OTC derivatives contracts retraced its earlier decline. Notional amounts rose from $482 trillion at end-December 2016 to $542 trillion at end-June 2017, close to their level of a year earlier. In contrast, their gross market value, which provides a more meaningful measure of market and counterparty credit risk, declined further in the first half of 2017, from $15 trillion to less than $13 trillion (Graph 1). The last time the gross market value of all OTC derivatives had been below $13 trillion was end-June 2007.

Gross credit exposures, which adjust gross market values for legally enforceable bilateral netting agreements (but not for collateral), also fell to their lowest level since 2007. They declined from $3.3 trillion at end-December 2016 to $2.8 trillion at end-June 2017."

Please click here to read the full article and see the relevant graphs

Below I have pasted in the full email update from the BIS

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December 2017 Can central banks talk too much? Central banks learn from market prices, and also influence market prices to steer the economy. Getting the balance right between talking and listening is important to avoid an echo chamber effect. CoCo issuance and bank fragility Larger and better-capitalised banks are more likely to issue contingent convertible capital securities (CoCos), the first comprehensive study of issuance shows. What makes a global bank systemically important? The Basel Committee has published the criteria, methodology and information used to update the 2017 list of global systemically important banks (G-SIBs).   Gross market values of OTC derivatives Over-the-counter derivatives market value falls In the first half of 2017, the market value of outstanding OTC derivatives contracts fell below $13 trillion to the lowest level in 10 years, partly reflecting higher long-term yields. House prices since the Great Financial Crisis Emerging market house prices have rebounded 6% since early 2016 and are now 17 percentage points above pre-financial crisis levels. Real residential property prices

Latest Updates from the BIS - Bank for International Settlements

I get regular email updates from the Bank for International Settlements when they issue new reports. Below I am just pasting in the latest update which mentions several issues that relate to what we cover here and may be of interest.

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August 2017 Keeping the financial system safe and secure International committees completed a Group of 20 workplan to help ensure that central counterparties can continue to operate in the face of shocks and even severe financial stress. Basel Committee releases implementation reports Regulations implementing the Liquidity Coverage Ratio in China and the United States are assessed as “compliant” with the Basel framework, while the European Union is “largely compliant”. Cross-border banking perks up International banking activity rebounded in the first quarter as lending to emerging market economies rose by the most in three years and credit to financial institutions such as hedge funds, securities brokers and special purpose vehicles picked up. Green finance at work Identifying climate change-related risks for the financial sector and ensuring that instruments labelled as “green bonds” meet high standards can help combat climate change. Financial regulatory reforms – latest developments and future work In this video, Fernando Restoy (FSI), Svein Andresen (FSB), William Coen (Basel Committee), Yoshihiro Kawai (IAIS), Morten Bech (CPMI) and David Walker (IADI) give an update on their work to reform financial regulation.  More BIS publications  Working Paper: Segmented money markets and covered interest parity arbitrage Deviations in covered interest parity reflect money market segmentation and differences in liquidity premia. Working Paper: Financial deglobalisation in banking? The decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending. BCBS Working Paper: The interplay of accounting and regulation and its impact on bank behaviour Accounting rules and disclosure standards are important determinants for banks’ incentives and behaviour. Building Resilience to Global Risks - Challenges for African Central Banks