The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Foreign Exchange

So is credit an issue?

In its March quarterly review, the Bank for International Settlements discusses the impact of the credit crunch. One section focuses on the turbulence on dollar, sterling, euro and yen swaps.

BIS points out that credit concerns played a role in the market drying up. “An important aspect of the turbulence was a shortage of dollar funding for many financial institutions: frequently reported were efforts by European financial institutions to secure dollar funds to support US conduits for which they had committed backup liquidity facilities. At the same time, the usual suppliers of dollar funds to the inter-bank market were looking to conserve their liquidity, due to their own growing needs and increased concerns over counterparty credit risk,” it says.


Later, the bank adds: “While transaction costs and political risk are largely negligible in today’s G10 currency markets, credit/counterparty risk may have increased significantly in the second half of 2007.” The emergence of concerns over counterparty credit seemingly strengthens the argument for using a central clearer.


However, BIS also points out that volumes in exchange-traded, short-term interest rate products fell significantly during Q4 2007. This may suggest that the main issue was not so much one of credit, but rather a lack of knowledge of where the market was. Perhaps that only strengthens the argument for using a central clearer, at least in swaps.





You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree