Credit Derivatives Market And Its Development In China

The core task of the financial reform is improving the quality of credit assets. Our commercial banks have a higher rate of non-performing loans and low capital adequacy ratio. This situation makes the ability to withstand credit risk low. Because of the sub-sector operation, the banks become more difficult to spread credit risk. Meanwhile, with the banking business innovation, credit risk has become more complex and difficult to control. Commercial banks using credit derivatives can obtain credit protection in a certain degree.-Thereby it may reduce the level of credit risk and allow banks to adjust the risks and benefits.Credit derivatives are innovative tools that can resolve credit risk. They make credit risk spin-off from other risks. Through hedge and the risk positions, we can resolve the credit risk positions which exist in the underlying assets and transfer them to the financial markets. Consequently, in the context of financial globalization, the study in credit derivatives is very significant not only theoretically but also realistically.In China, the credit risk management is weak, and the emergence of credit derivatives is a panacea. But at present, regulation in the new derivatives can be said it is a blank in our country. So it is necessary to study market regulation of the credit derivatives in other countries and international organizations. This may help our country to design the regulatory framework.First, this article introduces the credit derivatives products in detail. It analysis the background of credit derivatives, and briefly descript the derivatives and development of credit product in global, then introduce credit derivatives development process in our country. At the last of this part, we point out the new developments in the credit derivatives market and the problems faced. In the second part, through the empirical analysis, we conclude that the using of credit derivatives can transfer and hedge the risk assets, thereby reducing the credit risk. In other aspect, it can increase the return on capital through the role of savings banks capital. And then we talk about the effects of credit derivatives on financial institutions and financial market efficiency.Finally, we study the necessity and feasibility to introduce credit derivatives in our banks and the enterprises. According to feature of our financial market, we plan the path to introduction the credit derivatives correctly. That is using three-phase to open participation and three-stage to introduce trading varieties. In the situation that our financial institutions and investors lack of experience in derivatives trading, we should give priority to the development of standardized financial derivatives inside.The article researches credit derivatives, analysis the role of credit derivatives in the financial markets and the effect of credit derivatives in financial market efficiency. At the same time, we absorb the experiences in the current world financial crisis. This will help us to establish a suitable credit derivatives market and regulatory mechanisms.