Fed: More Banks Should Use Credit Derivatives

Patrick Parkinson, associate director at the Federal Reserve Board, said more banks should use credit derivatives to transfer credit risk. He estimated that only three banks in the U.S. have taken significant advantage of the default swap market. "The others should," he added.

Parkinson predicted that the proposed Basel Capital Adequacy Accord will encourage banks to mitigate risk through credit derivatives because it aims to align economic risk and regulatory capital.