http://blogs.reuters.com/financial-regulatory-forum/2011/01/11/links-to-cds-measures-growing-common-in-bank-credit-deals-westlaw-business/ Fri, 19 Apr 2013 00:29:31 +0000 hourly 1 http://wordpress.org/?v=3.4.2 http://blogs.reuters.com/financial-regulatory-forum/2011/01/11/links-to-cds-measures-growing-common-in-bank-credit-deals-westlaw-business/comment-page-1/#comment-7966 Arijit_Banik Mon, 09 Jan 2012 22:38:11 +0000 http://blogs.reuters.com/financial-regulatory-forum/?p=8170#comment-7966 Clearly the maxim that common sense is uncommon remains true as does the proposition that risk in its various manifestations is discounted by the "it won't happen to me" sense of expectation. Even if all actors do not have agreed upon objective probability distributions for rare events it does not mean that we should either understate or ignore such uncertainty. The CFOs and treasurers signing off on these covenants are taking a big gamble. Clearly the maxim that common sense is uncommon remains true as does the proposition that risk in its various manifestations is discounted by the “it won’t happen to me” sense of expectation. Even if all actors do not have agreed upon objective probability distributions for rare events it does not mean that we should either understate or ignore such uncertainty. The CFOs and treasurers signing off on these covenants are taking a big gamble.

]]> http://blogs.reuters.com/financial-regulatory-forum/2011/01/11/links-to-cds-measures-growing-common-in-bank-credit-deals-westlaw-business/comment-page-1/#comment-7965 dvandeventer Mon, 09 Jan 2012 22:18:51 +0000 http://blogs.reuters.com/financial-regulatory-forum/?p=8170#comment-7965 This loan structure is extremely dangerous because 81.68% of single name CDS transactions in the live trade warehouse at DTCC are dealer-dealer trades. Only one reference name in the world has averaged more than 10 non-dealer trades per day over the 77 weeks ended December 30, 2011. As a result, the dealer-lenders have near complete control over the base rate on the loan. This loan structure is extremely dangerous because 81.68% of single name CDS transactions in the live trade warehouse at DTCC are dealer-dealer trades. Only one reference name in the world has averaged more than 10 non-dealer trades per day over the 77 weeks ended December 30, 2011. As a result, the dealer-lenders have near complete control over the base rate on the loan.

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