However, measures taken by public authorities can only go so far. The banking sector needs to also do its part by committing to reactivating the interbank market, resuming their intermediation role and implementing the necessary reforms aimed at strengthening the resilience of the financial system in the long term.
Insurance companies, particularly insurance companies from continental Europe, have been cited as large investors in this market. In theory, the risk transfer associated with a bank’s purchase of credit protection for its loan book should be effective. Instead of suffering a loss when a borrower defaults, the bank now suffers a loss only when both a borrower and its credit derivative counterparty default.