The downgrade trigger trap

Trigger trap


If the Basel Committee on Banking Supervision had a suggestions box in the foyer of its Swiss headquarters, the majority of submissions from the banking industry would probably be unprintable in the pages of a family title such as this. But there would be one, at least, that regulators might embrace – the idea that downgrade triggers embedded in bilateral derivatives contracts should be banned.

The triggers embody two things regulators want to end. First, a mechanical reliance on credit ratings

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