For central banks, the development of CDS market is of interest for at least the following three reasons: •  first, central banks as key contributors to macroprudential supervision are conscious that CDS, as any OTC derivatives, have to be reflected adequately in the regulatory framework;  •  second and also in its supervisory role, central banks have been attentive to the implications of the enormous size of the created exposures;  BIS Review 105/2009  1  •  third, financial innovation affects the transmission mechanism of monetary policy, and is hence relevant for the central banks’ core task of conducting monetary policy.
Let me recall briefly some well-known facts about the development of these instruments. The credit derivatives market segment was probably the most innovative and fastest growing derivative market since the start of this decade. CDS were first traded in the late 1990 and rapid growth started in the early years of the present decade.