The collapse of insurance behemoth American International Group (AIG) on September 16 2008 was the biggest financial catastrophe never to happen, or so it was billed at the time. When the financial superpower experienced a paralysing liquidity shortage, leaving it unable to meet its obligations to its trading partners - with whom it had racked up a net notional credit default swap (CDS) exposure of $372.3bn - the US regulators galloped in to prevent what they feared would be a financial and economic apocalypse. The near fatality of AIG, combined with the demise of Lehman Brothers, shone a light on a sizeable yet opaque over-the-counter (OTC) CDS market that had hitherto escaped regulatory oversight, convincing many that both regulatory and infrastructural change is urgently needed. Discussions on the matter have turned to the well-established central clearing counterparty (CCP) model, found to be successful in the stock, futures, commodities and a number of derivative markets.
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