A Case Study of Derivative Disclosures During the Financial Crisis

Topics: Bond insurance, Bond, Risk Pages: 2 (318 words) Published: September 15, 2013


The case study resembles the important role of disclosures in using the derivatives. More companies are losing billions of dollars due to lack of transparency in doing derivative transaction. This can be seen in the monoline insurer like the American Municipal Bond Assurance Corporation (AMBAC) and the Municipal Bond Insurance Association were affected when the subprime mortgage financial crisis took place in 2007.

The issue of disclosures of derivative or the transparency of information for the parties involved in the derivative transaction still exists. The proposal in US legislator with regards to the financial reform with regards to derivatives can be a great help in providing a solution of transparency of information. However, some opposed to the proposal reform for the fact that it can be an obstacle when doing the derivative transactions.

Fortunately, improvement/amendment in the derivative accounting is being done with respect to disclosures of derivative. It can be seen from the International Accounting Standards used globally. However, it is noted that some of its provision are not applicable to other countries.

It is advisable that the government must consider implementing additional framework or regulation especially those unregulated derivatives market. This might help minimize the risk of incurring more loss and the issue of transparency/disclosure of information. It will be fair to everyone to have standard contracts in dealing derivatives.

The controversy with regards to the failure of Banker’s Trust rooted from not disclosing the right information to their clients. Hence, proper disclosure of information is very important especially in doing decision making.

The issue of transparency/disclosure is one of the issues that need to be resolved and proper action must be taken immediately. Although there were action taken by the government, but still,...
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