Derivatives facing inevitable market test-IMF

WASHINGTON, Oct 20 (Reuters) - Recent stress on derviatives and structured finance products show markets are testing these instruments' long-term viability, a top International Monetary Fund official said on Saturday.

"All market innovations eventually face market tests," said John Lipsky, the IMF's first deputy managing director. "Those innovations that are useful pass the test."

Securitized products and derviatives were created to help spread risk among investors and lenders but were hit hard by a recent credit crunch sparked by losses on risky U.S mortgage-backed securities.

"If designed correctly, they should help create broader efficiency in markets and enhance stability," Lipsky said.

He said markets and financial products have faced big tests before, including the 1987 stock market crash and the 1998 Russian debt default that led banks to bail out U.S. hedge fund Long Term Capital.