The downgrade trigger trap
Regulators may be hoping for the industry to solve problems caused by downgrade triggers - but they should not expect it
If the Basel Committee on Banking Supervision had a suggestions box in the foyer of its Swiss headquarters, the majority of submissions from the banking industry would probably be unprintable in the pages of a family title such as this. But there would be one, at least, that regulators might embrace – the idea that downgrade triggers embedded in bilateral derivatives contracts should be banned.
The triggers embody two things regulators want to end. First, a mechanical reliance on credit ratings
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