Derivatives hedging can weaken effect of capital rules – BIS paper
Banks increase use of credit default swaps when counter-cyclical buffers rise, study finds
Banks use credit default swaps (CDSs) to offset the effect of increases in the counter-cyclical capital buffer (CCyB), thereby potentially weakening the transmission of macro-prudential policy, new research finds.
A Bank for International Settlements working paper, published on January 20, uses regulatory data from the European Union to identify banks’ CDS positions. This enables the authors to measure how the “uninsured loan ratio”, a measure of how much lending is unhedged by CDSs, shifts in
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