A Federal Reserve survey of senior credit officers reported about half made some changes to their counterparty risk management as a result of the sudden return of volatility in the stock market in February, the Fed said Thursday.
After a quiet 2017, stocks plummeted in February on interest-rate hike fears, with the S&P
SPX, -0.54%
and the Dow Jones Industrial Average
DJIA, -0.69%
falling by more than 10% from their record highs, leaving them in correction territory.
As a result, the dealers changed margin requirements and haircuts, or made changes to risk limits and their models. Some firms also increased stress tests or had a more proactive monitoring of intraday margin calls. Firms differed over whether the changes were long-lasting or temporary.
The dealers reported no change in the demand for leverage via margin loans or equity derivatives as a result of the volatility.
Read: Why the Fed is watching a rise in an interest-rate benchmark pegged to trillions
The Fed collects quarterly information on credit terms and conditions in securities financing and over-the-counter derivatives markets, seen as important conduits for leverage in the financial system.
The questions on the stock market volatility were special questions specific to this survey. Overall, the credit officers for a small amount of firms reported an easing in credit terms for their hedge fund clients.
The Fed surveyed credit officers from 23 institutions between May 7 and May 23. The firms account for almost all dealer financing of dollar-denominated securities to nondealers and are the most active intermediaries in the OTC derivatives market.
Source : MTV
