Financial Derivatives: Actions Needed to Protect the Financial System
(Testimony, 06/23/94, GAO/T-GGD-94-170).

During the past two decades, fundamental changes in global financial
markets, particularly the increased volatility of interest rates and
currency exchange rates, have prompted public and private institutions
to turn increasingly to derivatives--financial products whose values are
based on the value of an underlying asset, reference rate, or index.
Basic types of derivatives include forwards, futures, options, and
swaps. Because of derivatives growth and increasing complexity,
Congress, federal regulators, and some industry members are concerned
about the risks that derivatives may pose to the financial system,
individual firms, investors, and U.S. taxpayers. These concerns have
been heightened by recent reports of huge losses by some derivatives
investors, some totaling hundreds of millions of dollars. This testimony
summarizes the major conclusions and recommendations contained in GAO's
recent report on derivatives (GAO/GGD-94-133, May 18). The testimony
also discusses H.R. 4503, proposed legislation that would require
regulators to set consistent standards for accounting, disclosure,
capital, and examinations; could produce better call report data,
including information on revenues gains and losses by product class;
would provide regulators greater access to information in an emergency;
and would encourage international cooperation to harmonize derivatives
regulation.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-94-170
     TITLE:  Financial Derivatives: Actions Needed to Protect the 
             Financial System
      DATE:  06/23/94
   SUBJECT:  Reporting requirements
             Banking regulation
             Securities regulation
             Risk management
             Internal controls
             Accounting procedures
             Information disclosure
             Regulatory agencies
             International economic relations

             
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