Greek crisis puts future of CDS in doubt

Financial Times
June 23, 2011

Earlier this year a eurozone finance minister telephoned a senior executive at one of the region’s biggest banks and told him that a credit event – or pay-out in credit derivatives in the event of a Greek default – must be avoided at all costs.

This finance minister knew who to call. The senior executive sits on the board of the organisation that will decide whether a rollover of Greek debt – where banks and investors are encouraged to reinvest in maturing bonds – will trigger a credit default swap pay-out, an event some politicians fear could spark a run on the eurozone banking system.

The pressure the banker came under highlights the worries among Europe’s political elite that some banks may be forced into insolvency if they are faced with a multibillion-dollar bill for selling protection on Greek CDS.

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