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Last Updated: 06/09/11

News Release

New Tool Helps Estimate Derivatives Collateral

CHICAGO - Software is now available from the Federal Reserve Bank of Chicago for use by national authorities, central banks and interested parties to estimate the aggregate amount of collateral that may be needed to implement financial reform initiatives in any jurisdiction.


Called the Derivatives Collateral Estimation Tool, the software features a complex interactive algorithm into which a wide range of data can be entered to estimate the total amount of collateral that would be required if a regulatory agency were to enact various types of financial reforms affecting exchange-traded and over-the-counter derivatives contracts.  The software could also be used to estimate the amount of collateral needed to accommodate future growth, in the absence of any reform initiatives.


The goal of developing and releasing the software is to help central banks and other national authorities make informed public policy decisions when implementing new regulations. It is not currently the intention of the Chicago Fed to use the tool to make its own such estimate. 


“There wasn’t any other type of tool out there that does this, and in talking to collateral practitioners and other market participants, we determined there was a need for it, especially in light of the financial regulations being considered by central banks and other national authorities” said John McPartland, a senior professional at the Chicago Fed who led a team that developed the software.


The tool is only as good as the assumptions that are fed into it, McPartland cautioned, adding that by making the software available on the Bank’s website he hopes that a wide variety of interested market participants will review it and make suggestions for improvements.


The software can be downloaded from the Chicago Fed’s website by going to /sitecore/service/notfound.aspx?item=web%3a%7b9390192E-8E62-4089-85E8-F2C0F8C6EB78%7d%40en

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