Asia Risk 15: Credit derivatives perform vital role but at heavy cost

simon-chiu-bnp-paribas

In the early- to mid-1990s, Asian banks predominantly housed the credit risk of counterparties by holding loans on their balance sheets. But the 1994 Latin American debt crisis prompted a shift in Asian debt markets. Banks began to unload credit risk through tradable instruments, such as bonds and floating rate notes, says Simon Chiu, Hong Kong-based head of credit flow trading for Asia including Japan at BNP Paribas. “This also encouraged the advent of a credit default swap (CDS) market in Asia

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