If this is the case, the creditors with CDS protection could have incentives to push troubled companies into bankruptcy instead of working out the troubled debt. Recently in the context of CDS on Greece debt, it is reported that the US regulators will look into the matter of CDS trader destabilizing not only companies but also countries. 33.
The CDS contracts involve a complex chain of counterparty risks and any default at any point can potentially become a systemic issue on account of gridlocked market. It is often assumed that once the credit risk is hived off by purchasing the protection, the risk is really out of the books.