Absence of regulation meant swaps not supported by capital reserves
The absence of regulation meant that, unlike a traditional insurance contract, there was no regulatory requirement to have adequate capital reserves to pay back the liabilities embodied in the credit default swap.
Immediately related elementsHow this works
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The Global Financial Crisis »The Global Financial Crisis
Immediate triggers of the financial crisis? »Immediate triggers of the financial crisis?
Pathology in the Credit Default Swaps market »Pathology in the Credit Default Swaps market
Credit default swaps became divorced from underlying value »Credit default swaps became divorced from underlying value
Absence of regulation meant swaps not supported by capital reserves
Absence of capital set aside sucked companies in »Absence of capital set aside sucked companies in
Allowed swaps contracts to be made many times over »Allowed swaps contracts to be made many times over
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