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Mediocre_Sympathy_65 OP t1_jdjwpsu wrote

Reply to comment by SatisfactoryFinance in Why does CDS surge is an indicator of a bank financial health ? by Mediocre_Sympathy_65

It makes sense now if they have an exposure to CDS something I didn’t know. I thought CDS Buyers were paid by a clearing house such as insurance companies in case of default

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SatisfactoryFinance t1_jdjxax5 wrote

Well someone has to be on the short end of the CDS. Though they could insure/hedge those losses but it’s hard and $$$ I assume now.

In 2008 all the banks that had the short end of the CDS went and got it “insured” by the insurance companies. The amount of notional insured back then screwed the insurance companies, zapped liquidity, and the markets froze up.

So I think people are just afraid of that happening again, I don’t know enough about todays markets to know how true or false that is.

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