 |
| Vesper: ?Germany's deficit increase is essentially a revenue problem. The weak recovery of the economy combined with tax cuts has lowered the tax revenue? |
German savings banks are using credit default swaps to reduce their credit risk concentration for the first time.
Thirteen savings banks from Hesse-Thuringia and nine from Bavaria are pooling credit risk synthetically, using platforms set up by the respective states' Landesbanken.
In the Bavarian deal, S-BayernBasket 1, the savings banks buy protection on individual reference entities from an Irish special purpose vehicle. The SPV pools the credit risks it has bought and issues a credit-linked note (CLN) that references the whole pool. A savings bank which has bought protection for, say, e5 million must invest the same amount in the CLN.
Although no savings banks have traded their notes yet, the CLN is designed to be tradable, and Bayerische Landesbank makes prices daily. As well as helping structure and administer the programme, BayernLB underwrote the CLN, a three-year floating-rate note. The first interest payments were made on August 11.