I'm looking for some information relating to the current and proposed regulatory treatment of Credit Default Swaps predominantly from the Protection Seller's perspective.
My limited understanding is that within the Banking Book where protection is sold via a CDS referenced to a single reference entity, the seller acquires an exposure to the credit risk of that entity. The amount of the exposure is the maximum possible amount payable under the terms of the contract if a credit event occurs. Where the reference asset is a corporate claim this would attract a 100% risk weighting and 8% charge.
What is the treatment within the banking book?
What will be the impact of Basle II.
many thanks (in anticipation)
Chris.
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