Central bank reports more leverage in swaps market

The ratio of the gross-market value of interest rate swaps to notional amounts outstanding rose from 2.7% to 4.2% over the period. That higher level was also significantly above the 3.3% level seen in 1998.

The review also cited a growing number of hedge funds and increased volumes of securitisation – in which arrangers have an incentive to achieve the greatest possible leverage consistent with target ratings – as other possible sources of system leverage in financial markets.

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