These programs offer market participants a powerful tool for helping control credit risk, although their use does, as we all know, pose significant legal and operational issues. Legitimate concerns Despite the commendable historical loss record and effective market discipline, there are undoubtedly legitimate concerns and avenues for significant improvement of risk management practices.
Moreover, during the recent phenomenal growth of the derivatives market, no significant downturn has occurred in the overall economy to test the resilience of derivatives markets and participants’ tools for managing risk. The possibility that market participants are developing a degree of complacency or a feeling that technology has inoculated them against market turbulence is admittedly somewhat disquieting. Such complacency is not justified.