Banks should not rely on CDS spreads for credit risk
A National Bank of Belgium paper published on Friday looks at the determinants of euro area bank credit default swap (CDS) spreads following the financial crisis.
In recent years market participants and supervisors alike have begun to look to bank CDS spreads as indicators of bank credit risk.
Bank CDS have been incorporated into regulatory initiatives to deal with toxic assets on banks' balance sheets. More recently, they have been proposed as a trigger mechanism in a number of regulatory
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