ECB has published a review of the CDS markets and counterparty risk management. The paper concludes:  

  • the European CDS market is highly concentrated in the hands of a few dealers, which worries banks;  
  • increased contagion risk results from interconnected deals because dealers all trade with each other;  
  • CDS are increasingly used as price indicators in other markets; and  
  • sovereign spreads in CDS widened in early 2009 which gave rise to new risks.  

The paper also looks at various initiatives to address problems caused by the CDS markets.