Development of assessment indicators for ensuring the financial stability of banking activities during transactions with derivative financial instruments

Abstract

The article is devoted to the development of assessment indicators for ensuring the financial stability of banking activities during transactions with derivative financial instruments, which was carried out using the hypothetical-deductive method, methods of induction and deduction, and generalization. The research substantiates the need to regulate bank operations with credit derivatives, in particular, credit-default swaps, which have a contradictory effect on the financial stability of banking institutions and became one of the causes of the global financial crisis of 2007–2009 due to their deregulation. Credit-default swaps, which were initially the main tool for enrichment and obtaining cheap resources, turned into the cause of mass bankruptcies of financial institutions and investors. The list of IFS was supplemented by the introduction of a new indicator – the «ratio of CDS purchased to gross loans» of commercial banks – with a threshold value for it set at the level of 100 %. The task of such an indicator is to ensure the possibility of preventive influence on credit and systemic risks arising as a result of banks’ transactions with derivative financial instruments. It provides for the prevention of issuing new loans at the expense of purchased CDS protection in excess of the volume of credit debt already existing in banks. This goal can be realized by preventing a certain multiplier effect, which consists in increasing the loan portfolio at the expense of CDOs and CDSs. The presence of such an indicator allows timely detection of possible imbalances at the level of an individual bank and an increase in systemic risk from the banking system as a whole.

Keywords

• derivative financial instruments
• financial stability
• financial stability indicator
• credit-default swaps
• credit risk