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.