ICB bail-in proposal revives CDS fears
CDS contracts would not trigger in the event a bail-in bond is written down, say lawyers – threatening their use as a hedge
A recommendation in the final report by the Independent Commission on Banking (ICB) earlier this week – that large UK banks should issue so-called bail-in bonds to improve their loss-absorbing capacity – has reignited concerns that credit default swaps (CDSs) referenced to bank debt may not be fit for purpose.
The report – the result of 15 months of work by a committee set up by UK chancellor of the exchequer George Osborne in June 2010 – recommends the ring-fencing of retail banking operations
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