Understanding Custom OTC Derivatives
Asset Bubbles and Economic Activity
FT Interview With Mandelbrot
Naked CDS: Exposed
Understanding The OTC Derivatives Market
Understanding Obama’s Financial Overhaul
Could Government Intervention Help Markets Function Better
Rethinking Central CDS Counterparties
The Sorry State Of The Dismal Science
Credit Default Swaps and Control Rights, Redux
Credit Default Swaps and Control Rights
The Regulatory Pendulum And Electoral Guillatine
How To Speak “Structured Finance”
The Fallacy Of Home Prices And The Reality Of Mortgage Modification
The Anatomy Of Deflation
Synthetic CDOs, Ratings, And Super Senior Tranches: Part 3
Synthetic CDOs, Ratings, And Super Senior Tranches: Part 2
Synthetic CDOs, Ratings, And Super Senior Tranches: Part 1
Tranches And Risk
You’re Trespassing On My Credit Event
Mark To No Market Accounting
Synthetic CDOs Demystified
A Conceptual Framework For Analyzing Systemic Risk
Derivatives/Synthetic Instruments Demystified
Systemic Counterparty Confusion: Credit Default Swaps Demystified
The Not So Efficient Market (Theorem) Hypothesis
Have you ever written about Derivatives and Bank Insolvency?
I am wondering if I understand this right: in a banking insolvency, those with derivative contracts with the failed bank get netted, and collateral absorbs losses. The conservator can transfer contracts to another bank, if it would be the best result. After all that, then if the failed bank still owes anything to the derivative counterparty, which happens?
• The derivative counterparty is superior to senior unsecured clients for the remaining claim, and gets paid before senior unsecured, or
• The derivative counterparty is pari passu with senior unsecured clients for the remaining claim.
Any help you would give me with this is appreciated.
We need to be precise – “banks” aren’t eligible for federal bankruptcy, but instead go into FDIC insolvency. Broker Dealers (e.g., Lehman) are eligible for bankruptcy. There are similar rules for derivative contracts in both cases, but I wanted to clear up which you were asking about first.
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