At the same time, credit derivatives’ activity increases the information on borrowers’ default risk and may contribute to compressing the external finance premium. In fact, three structural implications emanating from the use of credit derivatives might have affected the monetary policy transmission mechanism. First, credit derivatives and structured credit markets affect banks’ decision-making processes when granting credit.
One good thing is that the FALLCR concept has passed the RCAP review and therefore this can be a possible tool to reduce the impact of SLR and LCR running parallel as the minimum required LCR moves up. With the current levels of SLR assets held by banks, the joint LCR and SLR requirements is not becoming a binding constraint.