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I'm doing some work for a company and one of my tasks is to research credit default swaps on banks and to write a page about them explaining what they are and how they're used to evaluate the banks' credit-worthiness.

After doing a bit of research on them I have a few questions:

  • What are the terms of a standard CDS contract? I know they were standardised after the financial crisis but is there a standard size / length now?

  • I've been looking at some data for countries' CDS spreads and I'm pretty sure that sometimes the CDS spread went over 10000 basis points, which is over 100% per annum. Surely that can't be right, or have I completely mis-read it?

  • Does anyone know where I can find CDS spread data for different banks in the UK? The information doesn't seem to be searchable on Bloomberg and it's very difficult to find elsewhere.

  • What are the other ways that companies / banks look at the credit-worthiness of other banks in order to protect their exposures apart from CDSs?

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I can't recall ever seeing a CDS spread above 10000 basis points, although in theory it could be rational if the reference entity is sure to default in less than a year and recovery is expected to be very low. –  Tal Fishman Jul 19 '12 at 13:53

1 Answer 1

Markit is a pretty good source for CDS information, and their prices are pretty much the standard the industry goes by. Your best bet for finding large spreads would be to look at some of the European Banks or possibly TEPCO after the Japan Tsunami.

Derivatives by default aren't "standard," the instruments are designed to be flexible, but the closest thing to a standard I've seen in CDS is cost to insure 10M or 10,000.

Relating to your last question, this demo of Panopticon's counterparty risk software will show you some other ways banks hedge counterparty exposure.

Here is a daily report on the biggest movers you can subscribed to have e-mailed everyday:

Another good CDS site.

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