8-9 July 2009 1 Credit risk transfer statistics – gaps and possible scope for improvement...

8-9 July 2009

1

Credit risk transfer statistics –gaps and possible scope for improvement

Presentation to the IMF-FSB Users Conference

1

Michael Chui

2

Plan

1. Publicly available information on CDS markets;

2. Closing the data gaps:

a. Objectives; and

b. Data gaps and possible scope for improvement.

3

Publicly available information on CDS

1. BIS OTC derivatives statistics;

2. International Swaps and Derivatives Association (ISDA);

3. Depository Trust & Clearing Corporation (DTCC); and

4. BIS consolidated banking statistics.

Available information Global market sizeGlobal market size Transfer of credit riskTransfer of credit risk ImprovementImprovement

4

BIS semiannual OTC derivatives markets statistics (1)

Current regular OTC derivatives statistics – CDS Information collected biannually from all reporters

By rating category

By residual maturity

By sector Market values

Single-name instruments

With reporting dealers

With other financial institutions

Banks and securities firms

Insurance firms

Other

With non-financial customers

Investment grade

BB and below

Non-rated

Up to 1 year

1 to 5 years

Over 5 years

Sovereigns

Non-sovereigns

Gross market values

Multi-name instruments

(counterparty breakdown as above)

All contracts

(counterparty breakdown as above)

Source: BIS.


5

BIS semiannual OTC derivatives markets statistics (2)

Credit default swap market

Amounts outstanding in billions of US dollars, December 2008

Notional amounts outstanding Gross market

Bought Sold Total values

Total CDS contracts 33,866 33,024 41,868 5,652

With reporting dealers 25,033 25,010 25,022 3,177

With other financial institutions 8,526 7,826 16,352 2,377

Banks and securities firms 5,841 5,505 11,345 1,575

Insurance firms 284 115 399 58

Other 2,401 2,207 4,608 744

With non-financial customers 306 188 494 98

Up to 1 year 2,436 2,337 2,975 …

Between 1 and 5 years 21,464 21,112 26,714 …

Over 5 years 9,965 9,576 12,179 …

Single-name instruments 21,070 20,470 25,730 3,695

Multi-name instruments 12,796 12,554 16,138 1,957

Source: BIS.


6

DTCC’s Trade Information Warehouse data

Table Description

1 All credit products by customer type and breakout by product type, gross notional amounts outstanding

Customer type: dealer and non-dealer/customer

Product type: all credit default single names; all credit default index; and all credit default tranche

2 (3) Single name reference entity type by buyer (seller) of protection, gross notional amounts outstanding


Reference entity: corporate; sovereign, residential mortgage-backed securities; commercial mortgage-backed securities; CDS on loans and other

4 (5) On-the-run/Off-the-run index/index tranche by buyer (seller) of protection, gross notional amounts outstanding


6 Top 1000 reference entities, gross and net notional amounts outstanding

7 All indices and index tranches, gross and net notional amounts outstanding

8 Aggregate single-name contracts by year of scheduled termination date, gross notional amounts outstanding for 2009 to 2056


7

Closing the data gaps – objectives

1. Improve understanding of the structural changes of

global CDS markets;

2. Obtain better information on the transfer and ultimate

distribution of credit risk via CDS; and

3. Monitor short-term CDS market developments.


8

Understanding the structural changes: size of global CDS markets

Survey participants – end 2008

Total number of reporters are in brackets.

Sources: DTCC; ISDA; BIS.

ISDA: half-yearly, starting from H1 2001;

BIS: half-yearly, starting from H2 2004;

DTCC: weekly, starting November 2008.


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Comparing DTCC with BIS CDS data (end-2008)

Perfectly matched for “between dealers”; Much larger BIS amounts outstanding in single-name instruments; and BIS data show considerably larger on deals with non-dealer counterparties.

Amounts outstanding of credit default swaps

In trillions of US dollars

Dealers Non-dealers

DTCC (A) BIS (B) Ratio (A/B)1 DTCC (C) BIS (D)

Ratio (C/D)1

Single-name instruments 12.2 15.6 78 2.6 9.4 28

Multi-name instruments2 12.2 8.8 138 2.2 6.4 34

Total contracts 24.4 24.4 100 4.9 15.8 31

1 In per cent. 2 DTCC data include credit default tranches and credit default index.

Sources: DTCC; BIS.


10

Information gaps on the transfer and distribution of credit risk

1. Data quality – consistent counterparty and sectoral definitions;

2. New counterparty categories and instruments;

3. Counterparty and reference entity geographical breakdowns;

4. Market values; and

5. Timeliness and frequency.


11

Data quality

1. Consistent definition: eg, EU guideline on hedge funds;

2. Insurance company

Credit default swap market

Amounts outstanding in billions of US dollars, December 2008

Notional amounts outstanding Gross market

Bought Sold Total values

Total CDS contracts 33,866 33,024 41,868 5,652

With reporting dealers 25,033 25,010 25,022 3,177

With other financial institutions 8,526 7,826 16,352 2,377

Banks and securities firms 5,841 5,505 11,345 1,575

Insurance firms 284 115 399 58

Other 2,401 2,207 4,608 744

With non-financial customers 306 188 494 98


12

New counterparty and instrument; and market values

1. Central counterparties;

2. Index products;

3. Asset-backed securities; and

4. Net market values.


13

Linking with other credit derivatives statistics

Summary of the derivatives statistics reported in the BIS consolidated banking data

Components Derivatives transactions Valuation Account1

Net risk transfers

Guarantees and derivatives

Credit protection purchased by the reporter

Notional value Banking book

Guarantees extended

Guarantees and derivatives

Credit protection sold by the reporter

Notional value Banking book

Derivatives contracts

Derivatives All derivatives contracts Positive market value

Trading book

1 In the United States, however, these three items include “derivative contracts” in both the banking and trading books.

Source: BIS.

Gauging a country’s derivatives exposures to foreign counterparties; and Measuring the geographical distribution of a country’s credit risk exposures.


14

Possible improvement in the BIS OTC derivatives statistics and hanging issues

CGFS working group on credit risk transfer statistics recommendations

and further work;

1. Extension of the current data reporting template;

2. Providing more consistent guidelines; and

3. Exploring the linkages with other statistical sources.


8-9 July 2009 1 Credit risk transfer statistics – gaps and possible scope for improvement...

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