Bad Paper

According to Moody’s Investor Services, the sheer size of the Credit Default Swap market in notional terms and its exposure to “credit events” among underlying securities do not, in and of themselves, pose undue concern. However, Moody’s did report that the potentialfailure of an investment bank as counterparty would poses a large systemic risk.

According to Financial News Online the size of the credit derivatives market has ballooned in the past 11 years from $180bn in 1997 to $62 trillion in notional, sparking concerns by some investors and analysts, who fear that if a borrower underlying the contracts defaults, this could create large and widespread losses.