Dealers say regulations encourage CVA desks to buy CDS

12/15/2011 | Risk.net (subscription required)

Dealers are raising concerns that regulators are fostering a system that encourages credit value adjustment desks to buy credit default swaps, which could drive up spreads. That, in turn, will increase the CVA capital charge, which triggers more CDS buying. "The politicians don’t know anything about how this works," the head of one European bank’s sovereign bond desk said. "They say they think volatility in the CDS markets is driven by speculation, but the reality is the regulation is causing it."

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