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Why Would Anyone Want to Restart the Credit Default Swaps Market? 

May 11, 2015

Tracy Alloway, Bloomberg Business

Last week, Bloomberg reported that BlackRock, the world’s biggest asset manager, is leading a push to revive a type of derivative known as the single-name credit default swap. Readers may remember that such CDSs were blamed for exacerbating the financial crisis of 2008. So why, one might ask, would anyone want to revive this particular corner of the credit market?

Here's a rundown.

Meet the single-name CDS.

Cast your mind back to 1994. Ace of Base topped the charts, Forrest Gump was about to sweep the Oscars, and banks had a little risk management problem. In the days before the invention of the CDS, a bank that had made a loan to, say, Exxon could face losses if the company were to default. Yet such a bank had no way of hedging, or offsetting, that default risk without outright selling the loan it had just made. Enter the single-name credit default swap.

Read more: Bloomberg Business

 
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