BIS paper examines how banks use credit default swaps
Banks use CDS for position taking as well as insurance
Research published by the Bank for International Settlements sheds light on how banks make use of credit default swaps and the effects this may have on the market.
Iñaki Aldasoro and Andreas Barth study how banks use CDS when making syndicated loans, linking data on more than 1,000 banks in 28 countries. They find that while banks often use CDS for hedging, they also use them for “doubling up” their exposures.
The authors also examine how bank characteristics affect CDS use, finding “healthier
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