The risk transfer shell game

Credit derivatives

The UK’s Financial Services Authority (FSA) caused a storm of controversy in January, when chairman Howard Davies quoted an unnamed investment banker as saying that synthetic collateralised debt obligations (CDOs) were “the most toxic element of the financial markets today”. In May, the FSA officially backed away from those comments, but the focus on insurance companies’ use of credit derivatives by national and international regulatory bodies looks likely to continue for some time.


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