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Economic Brief

Dec. 2, 2020

Richmond Fed Researchers View CDS Dealers as Market Stabilizers

The Richmond Fed’s latest Economic Brief suggests that large dealers of credit default swaps act as market stabilizers during sovereign debt crises.

Using newly available data from the Depository Trust and Clearing Corporation, economists at the Richmond Fed track positions held by large CDS dealers around the time of default events in Ukraine, Venezuela and Argentina. In these three cases, the researchers find that as the risk of sovereign default increased, the dealers tended to increase their provision of insurance, offering liquidity amid financial turmoil.

The Richmond Fed’s Economic Brief series provides essays on economic issues and trends. Sign up to receive an email notification when a new essay is posted.

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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