Bail-in: why derivatives are in scope, but out of bounds
Analysing early termination costs - and the risks of contagion - will be tough
Buy-side firms are not sure what will happen to them when a big derivatives counterparty of theirs is next on the brink of collapse. If they are in the money, it is possible they will be forced to close out the trade early and will get some or none of the proceeds – a result of the bail-in framework through which a bank's losses can be inflicted on creditors.
But how real is that threat?
The good news is that Moody's Investors Service – as well as some architects of the bail-in framework –
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