Today’s chart comes from a research letter by the Federal Reserve Bank of San Francisco. The letter, "Bank Counterparties and Collateral Usage," examines the relationships between bank-holding companies and their trading partners in the over-the-counter derivatives markets. The chart focuses on concentration, liquidity and net exposure to derivatives.
Here's a brief explanation of how the chart works:
The size of a circle indicates the relative size of the net credit exposure for dealers’ average exposures to corporations (green dots), hedge funds (red dots), and banks (blue dots). The figure also shows a measure of the concentration of collateral across types on the vertical axis, with all cash collateral folded into a single category. The higher the value on this axis, the less diversified the average collateral pool is for a particular counterparty. The horizontal axis measures the shares of collateral according to how liquid it is, with higher values being more and lower values being less liquid.
The greatest exposure for bank-holding companies in the over-the-counter derivatives market seems to come from other banks.
A few other things leap out: Collateral posted by corporations usually comes from less liquid assets. Hedge funds tend to use lots of cash and Treasuries as collateral -- which is perhaps why they weren't significant contributors to the credit crisis.
To contact the author of this article: Barry Ritholtz at firstname.lastname@example.org.
To contact the editor responsible for this article: Alex Bruns at email@example.com.