Arising from financial institutions' need to hedge and diversify credit risk, credit derivatives have now become a major investment tool. Almost all credit derivatives take the form of the credit default swap, which transfers default risk from one party to another. Most credit default swaps were...

Close-out netting is a credit risk mitigation process that applies to over-the-counter derivative transactions between a defaulting party and a non-defaulting party. It also applies to repurchase agreements and clearing houses. The process consists of three steps: termination of obligations...

The empty creditor hypothesis suggests that bondholders and other creditors can use credit derivatives and other financial contracts to unbundle exposure to default from non-economic rights such as voting under debt agreements and in bankruptcy. According to the hypothesis, hedged creditors have...

Since 1970, the Fifth District has seen changes in state laws governing bank branching and interstate banking and in federal laws governing bank holding company activities. Now that branching within states has been liberalized in all Fifth District jurisdictions, the major field for future...

Deposit insurance, while reducing the threat of bank runs, also lessens bankers' incentives to control risks. Reforms of the deposit insurance system are necessary to discourage excessive risk taking such as characterized the recent S&L crisis. The adoption of market value accounting, early...

Gains from sales of securities and lower loan loss previsions helped bring higher profits to large Fifth District commercial banks in 1986. At the same time, small- and medium-sized bank profits fell slightly in the District from the previous year. As in the past few years, Fifth District banks...

When a money market instrument is traded, the clearing and settlement process establishes the change in ownership. Because the process involves both costs and risks, money market participants have developed means of making clearing and settlement more efficient and less risky

As the severity of the problems facing the federal deposit insurance funds become more obvious, the chorus of support for some form of market value accounting is growing. Proponents cite the benefits of increased disclosure and the discipline such accounting would bring about. Opponents argue...

Rent control is one of the few policy issues on which there is a general agreement among economists. Economic theory predicts, and few economists have tried to dispute, that imposing rent controls on a housing market is likely to lead to rental housing shortages and general deterioration of...