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This credit downgrade could require A.I.G. to post billions of dollars of additional collateral for its mortgage derivative contracts.
Firms like Goldman Sachs and JPMorgan Chase would have to bolster their capital cushion and post additional collateral for certain derivatives trades.
DealBook » Regulators Propose Capital Rules for Derivatives Trading | Firms like Goldman Sachs and JPMorgan Chase would have to bolster their capital cushion and post additional collateral for certain derivatives trades under the new plan proposed by the Securities and Exchange Commission.
AIG nearly collapsed in mid-September last year when it was downgraded by rating agencies and thus had to post additional collateral for its derivatives tied to U.S. subprime mortgages.
The banks were promised additional collateral for their loan renewals, but they were being asked to share some of that collateral with bondholders of two bond issues also being refinanced.
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Just a week ago, Carlyle Capital warned the market that it had begun to receive default notices after getting margin calls for additional collateral from lender banks.
We also lease expensive equipment to businesses, reducing their up-front costs and eliminating the need for additional collateral -- minimizing risk for both the entrepreneurs and our loan fund.
In this business, too, Dexia's problems have been worsened by aggressive demands by some trading partners for additional collateral.
But the bulk of the commission's time was focused on a real-world example of the havoc wrought by derivatives: the unrelenting demand for additional collateral that Goldman sought from the American International Group beginning in the summer of 2007.
At any company with a trading business -- Enron was one, but other merchant energy companies include the Williams Companies, Calpine and Dynegy -- the brokerage firms or banks financing their trades may ask for additional collateral if they start to lose confidence in the companies' abilities to raise money in the capital markets.
The correlation coefficient for additional collateral (COL) equals 0.03, which leads to the conclusion that Hypothesis H2 cannot be rejected.
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