Financial Supervisors Weigh In on Recent CDS Credit Events

Senior financial supervisors from seven countries (collectively, the Senior Supervisors Group) issued a report (pdf file) that assesses how firms manage their credit default swap activities related to the settlement of credit derivatives transactions terminated by the occurrence of a credit event.

According to all surveyed participants, the credit events in the latter half of 2008 in general were managed in an orderly fashion, with no major operational disruptions.

One quantifiable outcome as a result of credit event management is that even though the gross notional value of credit derivatives contracts written on Lehman Brothers was approximately $72 billion, the net cash flows were only a fraction of that amount—approximately $5.2 billion U.S. dollar equivalent in net funds was paid out.