Time to wipe out the absurd credit default swap market

Posted: January 10th, 2022

In 2018, the Financial Times carried an article entitled, ‘Time to wipe out the absurd credit default swap market’. The article contained the argument that CDS do not actually offer protection against default risk because the ‘event triggers’ can never be agreed upon in practice. In addition, although CDS protection can be purchased on some of the world’s biggest banks, is it realistic to expect that the protection seller will pay during the turmoil created by a collapse of a large financial institution? With reference to the features of CDS and the decline in the CDS market since 2013, discuss these issues. (LO 21.5)