The transfer of a credit risk to a guarantor in exchange for a correspondingly assessed premium (one party in the swap is a lender who faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments; if the third party defaults, the party providing insurance will have to purchase the defaulted asset with it the right to recover the loan at some later time). – In the course of the financial crisis following the subprime crisis, credit default swap premiums rose significantly. Countries with high debt ratios or exceptional growth in debt ratios were and remained particularly affected. – See credit default swap, derivatives clearing obligation, general collateral repos, loan securitization, risk taker. – See BaFin Annual Report 2007, pp. 31 f. (abrupt turnaround in CDSs in the wake of the subprime crisis; overview), BaFin Annual Report 2009, p. 15 (disturbing highs for Greece, Poland, and Russia), pp. 26 f. (CDSs for major German banks) and the respective BaFin Annual Report, chapter “Economic Environment,” Deutsche Bundesbank Monthly Report of December 2010, pp. 47 ff. (detailed explanations of the market for CDSs; important definitions; market structure data [oligopoly]; overviews; regulatory measures, if any), Deutsche Bundesbank Annual Report 2010, p. 91 (premia 2007 to 2011), Financial Stability Report 2011, p. 80 (actual risks assumed through CDSs are often imperfectly reflected in balance sheets; transparency requirements are needed; overview; references), Financial Stability Report 2013, pp. 96 f. (tendency to involve central counterparties; overview: CDSs settled via central counterparties [CCPs]; CCP settlement obligation in Japan and the U.S.), BaFin Annual Report 2013, p. 97 (credit default premiums of major German banks 2010-2013).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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