China Needs Credit Swaps to Manage Bank Risk, Bond Insurer Says
July 19, 2010, 6:54 AM EDT
July 19 (Bloomberg) -- China should allow derivatives such as credit-default swaps to control risk in the banking system, according to China Bond Insurance Co.’s chief risk officer.
“We are ready for credit-default swaps and other derivatives,” Liang Shidong said at a forum in Beijing today. “When innovation poses challenges to regulators, regulators should speed up. They can’t just say no.”
China is planning to introduce credit derivatives to help manage risk in the nation’s growing domestic bond market, the National Association of Financial Market Institutional Investors said on June 22. China bond sales surged to 1.96 trillion yuan ($289 billion) last year from 981 billion yuan as the government urged companies to reduce reliance on bank loans, according to data compiled by Bloomberg.
Derivatives are contracts with values derived from assets or events, including stocks, bonds, commodities, currencies, interest rates or the weather, and include credit-default swaps. Credit-default swaps pay the buyer face value in exchange for the underlying security if a borrower fails to meet its obligations, less the value of the defaulted debt.
“Systemic risk is expanding,” Liang said. “The traditional guarantees and collateral don’t work so well. The banks want to have proactive risk control tools like securitization and derivatives.”
China Bond Insurance was set up in September to help small and medium-sized companies raise debt finance.
July 19, 2010, 6:54 AM EDT
July 19 (Bloomberg) -- China should allow derivatives such as credit-default swaps to control risk in the banking system, according to China Bond Insurance Co.’s chief risk officer.
“We are ready for credit-default swaps and other derivatives,” Liang Shidong said at a forum in Beijing today. “When innovation poses challenges to regulators, regulators should speed up. They can’t just say no.”
China is planning to introduce credit derivatives to help manage risk in the nation’s growing domestic bond market, the National Association of Financial Market Institutional Investors said on June 22. China bond sales surged to 1.96 trillion yuan ($289 billion) last year from 981 billion yuan as the government urged companies to reduce reliance on bank loans, according to data compiled by Bloomberg.
Derivatives are contracts with values derived from assets or events, including stocks, bonds, commodities, currencies, interest rates or the weather, and include credit-default swaps. Credit-default swaps pay the buyer face value in exchange for the underlying security if a borrower fails to meet its obligations, less the value of the defaulted debt.
“Systemic risk is expanding,” Liang said. “The traditional guarantees and collateral don’t work so well. The banks want to have proactive risk control tools like securitization and derivatives.”
China Bond Insurance was set up in September to help small and medium-sized companies raise debt finance.