•  Introduction of CDS: The overarching argument for introduction of CDS is that it enables stripping and trading of credit risk and it eventually helps in diversifying the credit risk inherent in banks’ balance sheets.
While ideally it would make sense to start with an enlarged pool of protection sellers, the regulators concerned may not be comfortable in allowing their regulated entities to write credit protection. So, to begin with, the only natural protection sellers and effective market makers may again be banks and NBFCs.