No risk reduction from derivatives

News

According to a recent report by rating agency Standard & Poor’s, the apparently large volume of credit derivative activity has had less of an effect on banks’ credit risk than has been supposed.

S&P estimates that of the $3 trillion total notional amount of credit derivatives outstanding, only about $100 billion represents a transfer of credit risk from banks’ lending and trading activities to other market participants. According to the rating agency, the remainder represents the trading book

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