Martin Scheicher


November 19th 2018

Time: 1.00 - 2.00pm Venue: Room 3.21, Old Building, LSE (map)
Speaker: Martin Scheicher (European Central Bank)
Seminar Title: The Anatomy of the Euro Area Interest Rate Swap Market

Abstract: Using a novel regulatory dataset of fully identified derivatives transactions, this paper provides the first comprehensive analysis of the structure of the interest rate swap (IRS) market related to the euro area banking sector. Our dataset contains 1.7 million bilateral IRS transactions. We provide two main contributions to the literature. First, we analyse transaction activity in the IRS market, describing the structure of typical transactions, and the role of the clearing obligation. Second, we use a network perspective to study “who trades with whom on which type of IRS and at which price”. In a panel regression setup we investigate the determinants of trading activity, e.g. the impact of a trader’s size, liquidity or solvency. Our econometric specification distinguishes trading activities of key segments of the market (e.g. Dealers, SSM banks, other banks, CCPs and non-banks). Our key results are as follows: 1) The IRS market is highly standardized and concentrated around a group of core “intermediaries” (and major CCPs). 2)  Clearing has significantly affected the market structure. 3) Risk absorption does not exclusively happen in the core of the network. 4) The leverage ratio plays a key role in determining a bank’s IRS trading activity. 5) Dispersion in transaction prices is partly determined by a bank’s characteristics.