One of the central lessons of the past two years is that – despite the appearance of netting positions falling outside the banking sector – credit risk has not been effectively transferred outside of the financial sector, with a number of contractual arrangements preventing a true separation of credit risks from the lending institutions.
Furthermore, counterparty risk has taken as a result a prominent role, as indicated at least since 2005 by the Counterparty Risk Management Policy Group in the so-called “Corrigan report”. 3. CDS have increasingly become an important tool in the pricing of credit in other markets.