It looks like they might really ban naked CDS

France, Germany and others are pressing for a fast-track resolution to clamp on derivatives trading; Papendreou says Obama is ready to discuss the issue at the next G20 summit; technical differences between France and German remain unresolved; according to one news report, the euro group/Ecofin is to make a declaration in support of an EMF next Monday; Axel Weber opposes the EMF plan as a detraction: it would be better to strengthen the stability pact; Christine Lagarde dismisses the EMF as “interesting” but not a priority issue; Fitch warns that France, UK and Spain may lose their tripple-A rating unless they step up consolidation; Deutsche Bank analysts are questioning whether government bond rates can continue to act as a risk-free benchmark; German conservative commentators are becoming increasingly paranoid and conspiratorial as euro area crisis progresses; Martin Wolf, meanwhile, argues that the only way for the euro area to become more German, is for Germany to become less so.

'Swap Tango' – A Derivative Regulation Dance: Part 2

By: Satyajit Das

Banks and their lobbyists do not believe that there is a case for regulation. Banks argue that the complex nature of derivative trading dictates that self-regulation is the only feasible approach. If that fails, then banks seek to minimise scrutiny of major issues, such as the size of the market, speculative activity, pricing issues, complexity and mis-selling of derivatives to unsuitable clients. They argue that existing regulations already adequately cover some issues. Proposed regulations will be masterfully narrowed to minimise impediments to profitable activities.

'Swap Tango' – A Derivative Regulation Dance: Part 1

By: Satyajit Das

Politicians and regulators globally are currently busy drafting laws to regulate derivatives. A common theme underlying the activity is an absence of knowledge of the true operation of the industry and the matters that need to be addressed. As Goethe observed: "There is nothing more frightening than ignorance in action."

The case against naked CDS

By: Wolfgang Münchau

Credit defaut insurance without ownership of the underlying securities is seriously destabisling.

How to rescue a bank without regret

By: Reint Gropp and Jan Pieter Krahnen

During the recent financial crisis almost all bank rescue operations followed the same myopic script: once a troubled bank reports its troubles, a rush for resurrection sets in, frequently on a Friday evening after close of business. The authorities have only two and a half days, from Friday to Sunday, to find a workable solution. On Monday morning, before the opening of the markets on the other side of the globe, a water-tight rescue plan has to be presented to the public. More often than not, the bank will be bailed out with public money. This rewards excessive risk taking and weakens the position of the bank’s competitors. Both effects decrease social welfare and financial stability over the medium term. At the same time, the seeds for the next crisis are planted.