Side effect of EU ban on naked sovereign CDS is questioned

04/30/2013 | International Financing Review (free content)

Experts say Europe's ban on uncovered sovereign credit default swaps is driving trading to financial CDS. "Because of the ban on sovereign CDS, activity has moved to bank CDS," said Athanassios Diplas, a senior adviser to ISDA. "That is something policymakers have to think about very carefully as it creates a feedback loop [between banks and weak sovereigns]." However, an analysis by JPMorgan Chase disputes the migration theory. "We find no evidence of a significant migration from sovereign to bank CDS," according to the analysis.

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