The International Swaps and Derivatives Association has set up a working group to discuss alternatives for loan settlement of credit-default swaps sold by non-bank entities. Officials say the group is needed to tackle regulatory problems arising from the big increase in non-bank protection sellers.
In the event of default, borrowers may not consent to loans being transferred to non-banking entities because they cannot offer the borrower the same facilities as a bank, such as extending the loan, for example. This means protection sold by hedge funds is intrinsically less valuable than that sold by banks, because of the possible limits to settlement methods.
Kimberley Summe, ISDA general counsel, noted the group has been formed to consider all alternatives. Louise Marshall, spokeswoman for ISDA, added this is a unique project and no time frame has been set for a decision from the group.
