FSA warns of default risk
The growing use of credit derivatives and the rise of private equity mean that a large-scale default could be a much more complex and serious event in the future, according to the UK Financial Services Authority.
In a discussion paper released yesterday, the FSA said increased use of credit derivatives to repackage and reassign debt could "make it difficult to identify who ultimately owns the economic risk associated with a leveraged buyout and how these owners will react in a crisis".
The paper added: "These factors may create confusion which could damage the timeliness and effectiveness of workouts following credit events and could, in an extreme scenario, undermine an otherwise viable
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