Credit default swaps are contracts that provide protection against default by third parties, similar to insurance. These financial derivatives are used by banks and other financial institutions to manage risk. The rapid growth of the derivatives market, the potential for widespread credit defaults (such as defaults for subprime mortgages), and operational problems in the over-the-counter (OTC) market where credit default swaps are traded, have led some policymakers to inquire if credit default swaps are a danger to the financial system and the economy. This report defines credit default swaps, explains their use by banks for risk management, and discusses the …
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Credit default swaps are contracts that provide protection against default by third parties, similar to insurance. These financial derivatives are used by banks and other financial institutions to manage risk. The rapid growth of the derivatives market, the potential for widespread credit defaults (such as defaults for subprime mortgages), and operational problems in the over-the-counter (OTC) market where credit default swaps are traded, have led some policymakers to inquire if credit default swaps are a danger to the financial system and the economy. This report defines credit default swaps, explains their use by banks for risk management, and discusses the potential for systemic risk.
This report is part of the following collection of related materials.
Congressional Research Service Reports
The Congressional Research Service (CRS) is the public policy research arm of Congress. This legislative branch agency works exclusively for Members of Congress, their committees and their staff. This collection includes CRS reports from the mid-1960's through 2018—covering a variety of topics from agriculture to foreign policy to welfare.
Murphy, Edward Vincent.Credit Default Swaps: Frequently Asked Questions,
report,
July 30, 2008;
Washington D.C..
(https://digital.library.unt.edu/ark:/67531/metacrs10780/:
accessed February 13, 2025),
University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu;
crediting UNT Libraries Government Documents Department.
