credit swap

The growth of the market has forced the swaps and derivatives association to change the way its credit swaps work.

But in some cases defaults led to bond rallies, as those who had purchased credit swaps scrambled to get bonds to deliver.

That leads to Mr. Greenspan's broader idea: that financial institutions have steadily expanded credit by developing complex new instruments like credit swaps to hedge their risks.

That is about the same as the total amount of bond debt in the United States, and corporate debt, on which most credit swaps are traded, comes to just $5.2 trillion.

The five generic types of swaps, in order of their quantitative importance, are: interest rate swaps, currency swaps, credit swaps, commodity swaps and equity swaps.

It used to be that if a company defaulted, the writer of a credit swap would have to pay par value for the bond he had guaranteed, and could then sell the bond to reduce his losses.

The higher risk associated with raising debt through a subsidiary with a lower credit rating prompted Fitch Ratings to downgrade its rating of the credit swap risks in the takeover to 'negative'.