Credit-Default Swaps To Be Regulated

New York State will start regulating a part of the $62 trillion market for credit-default swaps, calling it a culprit in the global financial crisis.

Credit-default swap protection sold to investors who also own the security they're protecting will be treated as insurance, Governor Paterson said in a statement yesterday. State insurance regulators would require entities selling credit-default swaps in those cases to show they can actually pay the claims if there is a default.

New York said it's acting to bring supervision to a unregulated market that helped spread the risks generated by subprime mortgages to investors and financial institutions around the world. Banks have posted more than $500 billion in asset writedowns and losses, while the American government has proposed spending $700 billion buying back bad assets.

[The New York Sun yesterday reported on problems in credit-default swaps.]