S&P Indices partners with Isda to assess credit quality of US and European banks

S&P Indices launches equally weighted proxies that measure the quality of US and European banks in conjunction with Isda, the trade body for the global OTC derivatives industry

Gauging the quality of US and European banks

S&P Indices has collaborated with the International Swaps and Derivatives Association (Isda) to launch two credit default swap (CDS) indexes, providing industry participants with a daily measure of the credit quality of the US and European banking sectors.

Both indexes are equally weighted with no minimum ratings criteria for inclusion. "Institutional investors are definitely interested in the credit spreads of banks and financial institutions, particularly those of their major counterparties," says James Rieger, vice-president at S&P Indices in New York. "As those credit spreads tighten or widen, investors will manage their portfolios accordingly – getting a leveraged exposure or using it as a hedge."

The S&P/ISDA CDS US Financial Select 20 Index and the S&P/ISDA CDS European Banks Select 15 Index target financial intermediaries that seek a standardised index to hedge broad financial counterparty risk.

In addition to reflecting the credit default swap market for corporate credits, the indexes were launched to increase transparency for market participants. The indexes offer investors a targeted measure of counterparty risk, as well as insight into how the markets view the credit risk of the majority of trading counterparties for over-the-counter derivatives and other credit-sensitive transactions.

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