Fed, banks agree on default swap changes to reduce risk
Regulators and banks agreed to changes aimed at easing the risk of a collapse in the $62 trillion market for credit-default swaps.
By Bloomberg |
NEW YORK/TOKYO: Regulators and banks agreed to changes aimed at easing the risk of a collapse in the $62 trillion market for credit-default swaps.
Morgan Stanley, Deutsche Bank and Goldman Sachs are among the 17 banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market-makers, the Federal Reserve Bank of New York said on Monday in a statement following a meeting with the firms.
This will reduce ���the systemic risk when a large counterparty fails,��� Tim Brunne, a Munich-based credit strategist at UniCredit, said in an interview on Tuesday. ���A large portion of the market would be trading against the central counterparty, and that would be a good thing.���
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company���s ability to repay debt. They pay the buyer face value should the company fail to adhere to its debt agreements.
Morgan Stanley, Deutsche Bank and Goldman Sachs are among the 17 banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market-makers, the Federal Reserve Bank of New York said on Monday in a statement following a meeting with the firms.
This will reduce ���the systemic risk when a large counterparty fails,��� Tim Brunne, a Munich-based credit strategist at UniCredit, said in an interview on Tuesday. ���A large portion of the market would be trading against the central counterparty, and that would be a good thing.���
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company���s ability to repay debt. They pay the buyer face value should the company fail to adhere to its debt agreements.
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