A number of years ago, Alan Greenspan, then chairman of the U.S. Federal Reserve, talked of a “new paradigm of active credit management.” He and other commentators argued that the U.S. banking system weathered the credit downturn of 2001–2002 partly because banks had transferred and dispersed their credit exposures using novel credit instruments such as credit default swaps (CDSs) and securitization such as collateralized debt obligations (CDOs).1 This looked plain wrong in the immediate aftermath of the 2007–2009 financial crisis, with credit transfer instruments deeply implicated in the catastrophic buildup of risk in the banking system.

Yet, as the dust has settled in the years after the ...

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