All of these features meant that the modeling error involved in the process resulted in credit-risk measures that were noisy and potentially biased. Now, instead of looking to the bond market to measure default risk, we are increasingly turning to the market for credit default swaps, or CDS. CDS are more standardized than corporate bonds, and, over time, they have also become more liquid.
Led by two of the Central Bank’s Risk Advisers this review, which is due to report early in the New Year, will make recommendations to strengthen the current audit, supervisory and regulatory framework.