CDS, which are used by investors to hedge against the risk of default by a borrower, together with other derivatives, have been the subject of mounting criticism as they may have helped conceal Greece’s debt problems. The Federal Reserve and securities investigators are currently looking at how Goldman Sachs may have helped Greece disguise the size of its budget deficit though the use of derivatives. Lagarde had previously called for better regulation of the market for sovereign credit default swaps but had stopped short of suggesting a ban.
“I think that derivative products... the CDS on sovereign debt have to be at least very, very regulated, rigorously regulated, limited or banned, this is a personal position on financial instruments,” Lagarde told Europe 1 radio. Lagarde said she had no doubt Greece would be able to refinance its debt with the help of public, private funds or both. Revelations that Greece’s deficit was three times bigger than originally forecast has plunged the country into a debt crisis.
