Chapter 16. Credit
“Directors noted that the rapid growth in recent years of credit derivative and structured credit markets had facilitated the dispersion of credit risk by banks to a broader, more diverse group of investors, making the financial system more resilient and stable. However, directors observed that these markets had grown rapidly in a relatively benign environment and had not been fully tested.”
IMF Global Financial Stability Report, 2006
The credit market boom of the mid-2000s, especially in sub-prime mortgages, sparked a scandal of historic proportions. Derivatives enabled investors to spread credit risk and gave the impression that the risk of default throughout the economy had reduced. In fact, they made funding artificially ...
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