- 'Significant Weakness' Still Ahead: Fed's Hoenig
- Stronger Yuan Needed for Global Rebalancing: IMF Chief
- Japan Third Quarter GDP Jumps; 2010 Growth May Slow
- Quiz: How Much Do You Know About Green?
- Analysis: APEC Nations Back Face-Saving Climate Plan
- BlackRock: Central Banks To Be Net Buyers of Gold
- GM to Start Repaying $6.7 Billion US Government Loan
- Canon to Buy Dutch Oce in $2.2 Billion Deal
- Shift Into High-Quality Stocks Could Move Market Higher
- Warren Buffett to CNBC: 'I Haven't Bought American Express In Years'
- CNBC Video: Warren Buffett & Bill Gates - Keeping American Great
- U.S. Stocks Rally for the Second Straight Week
- Dollar is Not Plunging—So 'Calm Down': Market Strategist
- Strategists Say Markets Have More Upside — But How Much?
- Hirschhorn: Risk-Averse Traders
- Roginsky: A Funny Thing Happened on the Way to Financial Reform
- This Year's Biggest Thanksgiving Leftover: Cash
- TV Series Inks Unique Deal For Fight
MOST SHARED
- U.S. May Wind Up Green With Envy
- Warren Buffett to CNBC: 'I Haven't Bought American Express In Years'
- Japan Third Quarter GDP Jumps; 2010 Growth May Slow
- For Investors, The New Green Looks To Be White
- Analysis: APEC Nations Back Face-Saving Climate Plan
- Taking a Page from Obama's Asia Agenda in Investing
- CNBC Video: Warren Buffett & Bill Gates - Keeping American Great
- Stronger Yuan Needed for Global Rebalancing: IMF Chief
- Disaster Film '2012' Drowns Rivals at Box Office
- Sustainability Indices Sprouting Up
Most institutional investors expect another failure of a major financial services firm in the coming year and view credit default swaps as a serious threat to market stability, according to a survey by Greenwich Associates.
![]() |
Credit default swaps, which are used to hedge against the default of a debt issuer or speculate on its credit quality, are viewed by almost 85 percent of U.S. respondents and more than 55 percent of European institutions as a serious threat to global markets, Greenwich said.
Concerns over the health of credit default swap counterparties led 62 percent of fixed income investors to limit their use of the contracts, the survey found.
The U.S. Federal Reserve organized a rescue of Bear Stearns in March on concerns its failure could have sparked a systemic meltdown in financial markets, given the size of Bear's role as a counterparty in the CDS market.
As losses in bad mortgage debt and other securities mount, investors view a similar failure as likely.
"If you are looking for a silver lining in these findings, it seems that most institutions think we are currently in the most dangerous period for global financial services firms," Greenwich Associates consultant Frank Feenstra said in the report.
"Perhaps if the markets can make it through the next six months, the level of pessimism may begin to subside," he added.
More than 70 percent of fixed income investors said they managed counterparty risks by trading only with the most financially sound banks and broker dealers, and 65 percent said they try to limit the concentration of exposure with a single counterparty, Greenwich said.
Three-quarters of survey respondents said they believe plans by a group of dealers to create a centralized clearing entity will mitigate CDS counterparty risk, though the majority of hedge funds said they would prefer a clearing platform operated by an exchange.
Investors also reported their banks have tightened margin or collateral requirements since the credit crunch began a year ago, though nearly 65 percent of investors said this had not had a significant impact on their trading activities.
The Greenwich Associates survey included 32 hedge funds and 114 banks and investors who only take "long" positions. Seventy percent of respondents are in the United States, with others in Canada and Europe.
- Where, what, how.
- Warren Buffett and Bill Gates spoke to Columbia students, and Buffett made the students a startling offer.
- For the chief of cable company Comcast, growth has been about making deals – generally very large deals.
- Some companies may start using insurance to shift carbon risk from their balance sheets to maybe... yours?
- The president and founder of Genesis Today wants to improve America’s health, and thinks Wal-Mart can help.
- Switzerland's privacy watchdog is taking legal action to force Google to make changes to its Street View service.












