Multilateral netting offsets gross payment obligations among several counterparties with new transactions. By keeping a running total for monies owed between all participants, multilateral netting allows for three or more parties to reduce multiple transactions to a single pay or collect per...

This paper develops a model that explains how the creation of a futures clearinghouse allows traders to reduce default and economize on margin. We contrast the collateral necessary between bilateral partners with that required when multilateral netting occurs. Optimal margin levels balance the...

We study the relationship between bank participation in derivatives contracting and bank lending for the period June 30, 1985 through the end of 1992. Since 1985 commercial banks have become active participants in the interest-rate derivative products markets as end-users, or intermediaries, or...