NET theoretical exposure to debt sovereign (in billions) in the week ending July 15, assumes obligations lose all value. Data: Depository Trust & Clearing Corp.
By Peter CoyJamie Dimon was all about safety on 14 July, the Executive Director of JPMorgan Chase announced second quarter profits. He said that gross exposure of sovereign Bank and other debts in Greece, Ireland, Italy, Portugal and Spain was for $ 100 million. Its net foreign exchange exposure, said Dimon, was only $ 15 million. The difference? Exchanging material published by borrowers, who can use a default value, compensation loan credit default: insurance that pays off when a borrower defaults.
Credit default swaps are a source of pride for Dimon. His invented Bank CDS in the 1990s and is the largest in the world in them Distributor. Coverage with credit default swaps allow JPMorgan maintain loans in Europe, Dimon said: "we will not cut and execution." Default credit swaps, as any insurance, however, are only as reliable as the company promises to pay. If the banks that sell protection between themselves all home suffering from loan losses, are like drowning men offering to save each other. Tricky business is to maintain the benefits of swaps reducing its potential problems. Regulators are only loses to a solution, and some corrections could worsen.
Consider how a default exchange of credit. It has more than 100 million dollars in bonds of the Italian Government, and is concerned Italy can not afford. To enter a contract with someone, usually a bank or hedge fund - to buy what amounts to the insurance. If Italy in the next five years, the other party must do it all. You get the difference between the nominal value of bonds and all are trade for post-default. This insurance can be purchased even if you do not have any exposure to Italy, in which case it is simply speculating in default.
The beauty of the swaps is transfer of risk for persons who do not want people who are happy to have, for a price. They are also an early indicator of problems. "Do many transparent things that would otherwise be hidden, which" says René M. Stulz, an economist at Fisher College of Business at Ohio State University.
At the same time, CDS can distort incentives for creditors. An investor with bonds of the company usually want the company passing through labour problems. A bondholder who bought CD protection can be indifferent to the collapse of the borrower. What is the University of Texas Professor Henry T. C. Hu law school called the problem of "empty creditor". In the end, said Hu, an empty creditor could even have an incentive to frustrate a restructuring.
Regulators also worry that protection sellers are making promises which cannot keep. Division of London executives of American international group financial products sold foolishly protection underpriced in overvalued charges U.S. mortgage securities. The federal Government, us taxpayers, had to avoid a collapse by default version of with the bailout of $ 182 million.
Indeed, it is little likely failure cascade of credit default swaps. The "theoretical net exposure" sellers of Greek sovereign default protection is only $ 4.6 million, according to data collected by the Depository Trust & Delete Corp., a company based in New York that serves as the accounting officer of finance. Decode, this means that even if the value of Greek bonds fell to zero (which won't happen, because the Greeks can be paid at least part of its debt) and the exhibition were the books of a Bank (which is not), more than the Bank would be $ 4.6 million. The exhibition of all the system corresponding to Italy is $ 24 million.
Sometimes, however, the fear of the unknown matter more than the reality. The European negotiators live with the fear that the determinations of derivatives of the bank credit Committee controlled International Swaps and derivatives Assn.. (ISDA) shall declare to the next Greek restructuring of an event of outbreak of credit default swaps.
没有评论:
发表评论