First, regulators are broadly in agreement that, owing to their private nature, CDSs have contributed to the reduced transparency of the credit markets, helping to shift credit exposures in a manner that makes it very difficult to assess how different institutions are interlinked and how much credit risk they actually hold.
Second, given that the related credit exposures are significant in terms of both the total counterparty risk and the capital cushions of the financial institutions involved, and also considering the highly concentrated nature of CDS markets, purely bilateral risk management has proven insufficient, notably in view of the risk of default by a major counterparty.