Monday, October 13, 2008

Regulating Credit Default Swaps

It's time to think about re-regulation of the financial industry and keep notes.

Here is question one:

Should one bank speculate in the credit(s) of its

  • -trading partners
  • -clearing partners

It would seem like there is a plain conflict of interest, absent a "Chinese Wall".

Question two:

How should the financial reporting disclosures of these ... contingent liabilities / assets ... be changed?

Should it matter how something is accounted for, if you write a credit-enhancement (or other derivative inducement) on a product you are selling yourself, versus one that is arms-length? Should one be more conservatively accounted for than the other?

...more to come ...

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