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6 The Revision of the Credit Derivative Definitions in the Context of the Bank Recovery and Resolution Directive »

Simon Grieser, Christian Mecklenburg
From: Bank Resolution: The European Regime
Edited By: Jens-Hinrich Binder, Dalvinder Singh
This chapter examines the adaptation of the International Swaps and Derivatives Association (ISDA) framework by means of the 2014 ISDA Credit Derivatives Definitions (2014 Definitions) in addressing how the EU Bank Recovery and Resolution Directive (BRRD) affects credit derivatives. Particularly, it analyses how the institution or obligation to which the credit derivative is referenced becomes subject to the measures. Financial derivatives are financial instruments which provide for an immediate or future exchange of a reference value. Its price inter alia derives from the underlying reference value. Credit Derivatives help transferring the risk of a referenced third party defaulting on its obligation from the buyer to the seller of the Credit Derivative. The chapter explores the documentation of Credit Derivatives and the adjustments made during the financial crisis. It concludes with an analysis of the BRRD from a Credit Derivatives’ perspective and illustrates experiences made during the financial crisis.