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SUMMARY:Simulating liquidity stress in the derivatives market - Gerardo Fe
 rrara\, Ph.D.\, Economist | Market Behaviour & Activities Team | Capital M
 arkets Division\, Bank of England
DTSTART:20191017T120000Z
DTEND:20191017T130000Z
UID:TALK127579@talks.cam.ac.uk
CONTACT:CERF/CF Admin
DESCRIPTION:We investigate whether margin calls between derivative counter
 parties could strain their ability to pay and thereby spread liquidity str
 ess through the market.\nUsing trade repository data on derivative portfol
 ios\, we simulate variation margin calls in a stress scenario and compare 
 these with institutions' liquid-asset buffers.\nWhere these buffers are in
 sufficient to meet the margin calls we assume institutions borrow the shor
 tfall\, but only at the last moment when payment is due. We find\nthat liq
 uidity shortfalls are only a modest proportion of average daily cash borro
 wing in repo markets. Additionally\, only a small part of those liquidity 
 shortfalls could be avoided if payments were centrally coordinated\, for e
 xample by a regulator that directed institutions in distress to make parti
 al payments. That said\, our methodology could be used regularly to invest
 igate whether margin calls could generate systemic liquidity strains. If t
 hat were the case\, additional liquidity requirements\ntargeted at institu
 tions that spread liquidity stress would reduce potential liquidity shortf
 alls most effectively.\n\n
LOCATION:Castle Teaching Room\, 4th floor\, Cambridge Judge Business Schoo
 l\, Trumpington Street\, CB2 1AG
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