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Maddalena Ghio

17 November 2021
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2021
Details
Abstract
This box establishes stylised facts about the significant increase in initial margin (IM) in the euro area derivatives market during the March 2020 market turmoil. First, it shows that the increase was concentrated almost entirely in centrally cleared derivatives and driven mainly by equity, credit and interest rate portfolios. Second, by comparing static portfolios with those where portfolio repositioning took place, the IM increase is decomposed into (i) changes attributable to the CCP model sensitivity to market volatility, and (ii) changes attributable to portfolio repositioning by investors. For centrally cleared interest rate and credit derivatives (where this method is applicable), CCP model sensitivity to market volatility is found to be a key driver of the IM increase. Overall, the results suggest that it is important to develop a clearer understanding of “excessive procyclicality” for IM and possibly, on the basis of this common understanding, to review the models which CCPs use to calibrate IMs. The supervisory and regulatory framework governing the liquidity management of market participants, and in particular that of some non-bank financial intermediaries, should also be strengthened.
JEL Code
C60 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→General
G10 : Financial Economics→General Financial Markets→General
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing
5 August 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2021
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Abstract
This box studies the potential consequences of the ongoing shift away from defined benefit (DB) towards defined contribution (DC) products in the insurance and pension fund (ICPF) sector. In view of the different risks associated with these products, their portfolio allocations differ, with DB products being more heavily invested in long-duration fixed-income assets. Given the sizeable amount of ICPFs’ assets under management, the move from DB to DC products can reduce the demand for these assets, potentially having profound effects on the financial system and the economy. Such effects may include a steeper yield curve, a boost to equity financing, and more uncertainty in the build-up of retirement savings.
JEL Code
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
E34 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
25 November 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2020
Details
Abstract
In the most turbulent week during the coronavirus-related market turmoil in March 2020, euro-denominated money market funds experienced very high outflows. But which investors withdrew from these funds and why did they do so? This box suggests that the increase in variation margin on derivatives contracts held by euro area insurance corporations and pension funds was one of the key drivers behind these outflows.
JEL Code
G01 : Financial Economics→General→Financial Crises
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G15 : Financial Economics→General Financial Markets→International Financial Markets