The number of credit support agreements between parties to privately negotiated derivatives transactions and related margined activities continues to grow significantly, although the estimated amount of collateral in circulation is up only slightly from last year at $1.335 trillion. The International Swaps and Derivatives Association (ISDA) today previewed a summary of its 2007 ISDA Margin Survey at its 22nd Annual General Meeting in Boston.
This year’s survey shows a slight increase over the $1.329 trillion of collateral in circulation reported in the 2006 Margin Survey. It also reports a 21 percent increase in credit support agreements, with 133,193 collateral agreements reported in this year’s survey compared with 109,733 last year. The growth rate was actually higher, at 31 percent, among firms that responded to both the 2006 and 2007 surveys.
The 2007 Margin Survey also finds that firms continue to increase collateral coverage of the counterparty credit exposure in their credit and fixed income portfolios. On average, 66 percent of the responding firms’ credit exposure related to their credit swap portfolios was covered by collateral, up from 62 percent last year. With regard to credit exposure related to their fixed income swap portfolios, 65 percent was covered by collateral, compared with 57 percent in last year’s survey.
“Our 2007 Margin Survey once again underscores the importance of collateralization and its maturity as a risk mitigation tool,” said Robert Pickel, Executive Director and Chief Executive Officer, ISDA. “From the launch of ISDA’s Credit Support Annexes over a decade ago, to the publication of our Collateral Guidelines, to the on-going work of our Collateral Committee, the Association plays a leading role in facilitating the use of collateral amongst industry participants.”
Of the 97 firms responding to the 2007 ISDA Margin Survey, 76 were banks or broker-dealers, and the remaining were institutional investors and end users.