NEW YORK, Feb. 27, 2012 /PRNewswire/ -- Recent widening in five-year credit default swap (CDS) spreads for systematically important financial institutions (SIFIs) and their sovereigns have resulted in record high costs for insuring against default risk, says a new S&P Capital IQ report published today. A copy of the report, The Increasing Cost of Insuring Against the Global Financial Crisis, written by S&P Capital IQ Solutions Architect Pavle Sabic, is available here.

According to the report, which examines 29 SIFIs in 12 countries, policies that ensure that no SIFI is allowed to fail appear to be having a concomitant effect on the increasingly higher costs to insure against default.  In part, it concludes, this is because SIFIs have been forced to step up their capital buffers, tighten their belts on risk management, and adapt to new regulations, thereby shifting more of the risk concerns to the sovereigns in which they operate.

The S&P Capital IQ research combines its proprietary Market Derived Signals (MDS) alongside Credit Default Swap analysis. Both the CDS and the MDS can be used as indicators for market perceptions of credit risk.  The MDS provide a score, quantitatively derived from the CDS spreads, used to assess the market's current view of an entity's perceived credit quality. Utilizing these multiple perspectives to monitor creditworthiness, the report's author found deterioration in the market's view of several key sovereigns through elevated CDS spreads and declining MDS scores.  His analytics indicate that the market perception of the credit quality of France, Italy, Spain and Belgium have declined notably over the past several years.  Spain and Italy, in particular, have fallen below their investment grade equivalent on the MDS's lowercase scale and have shown signs of deterioration for more than 30 months.

The Increasing Cost of Insuring Against the Global Financial Crisis is part of on ongoing series of research reports provided by the Solutions Architects team of S&P Capital IQ and made available over S&P Global Credit Portal and standardandpoors.com.

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SOURCE S&P Capital IQ