Cleveland Fed Researchers Examine Derivatives, Systemic Risk

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As Congress works on finalizing financial reform legislation, there is widespread agreement about the need for better management of systemic risk. But in order to manage systemic risk, you need to be able to define and measure it, says researcher Joseph Haubrich, writing in the Federal Reserve Bank of Cleveland's 2009 Annual Report.

As Congress works on finalizing financial reform legislation, there is widespread agreement about the need for better management of systemic risk. But in order to manage systemic risk, you need to be able to define and measure it, says researcher Joseph Haubrich, writing in the Federal Reserve Bank of Cleveland's 2009 Annual Report. Haubrich and other Cleveland Fed economists advocate using the "four C's" to define systemic risk: contagion, concentration, correlation, and context. Read more.

As the recent financial crisis demonstrated, the derivatives market can pose a substantial threat to financial stability in times of systemic turmoil. The lack of transparent reporting of trades and exposures can leave regulators and investors in the dark about where risks are concentrated. In a recent Economic Commentary, Federal Reserve Bank of Cleveland researchers Kent Cherny and Ben Craig discuss some of the benefits of moving the settlement or trading of derivative instruments onto exchanges or clearinghouses, similar to those currently being used for stocks and options. Read more.

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Anne M. DiTeodoro
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