A growing market for credit risk transfers is drawing a debate over potential hazards and benefits
The writer is a former investment banker and author of “Power Failure: The Rise and Fall of an American Icon” There is an old idea making new waves on Wall Street. Banks of all stripes are once again moving risk off their balance sheets, in line with the demands of their prudential regulators, to make room for taking on more risk.
And this is what worries people like Sheila Bair, the former chair of the Federal Deposit Insurance Corporation, and Simon Johnson, the newly-crowned Nobel laureate and MIT professor of entrepreneurship, who remember all too well how the promise of risk containment, using another creative financial product — “credit default swaps” — nearly blew the financial world to smithereens back in 2008.
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