The recent precipitate reduction in credit market liquidity
has lead commentators in the UK to call for more regulation.
They have pointed variously to (i) requirements for more
disclosure of credit derivative holdings; (ii) reform of
accounting standards and regulatory reporting requirements; and
(iii) regulation of rating agencies. In the UK, following the
travails of the Northern Rock Building Society, there has also
been debate about the effectiveness of regulatory supervision.
The ability of a tripartite regulatory structure constituted by
the FSA, the Bank of England and the Treasury to respond to a
banking crisis has been put under scrutiny. This article
considers how the credit markets' should be regulated.
Banks' extensive use of credit derivatives and
securitisations has reduced the transparency of the location
and concentration of credit risk. It has not fully insulated
financial institutions from credit default liabilities and
losses. However, regulation of banks and investment