EU investigates banks on credit default swaps

The EU's competition authorities are investigating the activities of nine of the world's biggest banks over the market for credit default swaps (CDS). CDS's are a form of insurance policy taken out on financial instruments, such as bonds, in case they lose value. The banks include Barclays, Goldman Sachs, Deutsche Bank and Citigroup. The probe centres on whether preferential treatment - including special low fees - was given by a clearing house to drum up business. The other five banks involved are Bank of America, Credit Suisse, JP Morgan Chase, Morgan Stanley and UBS. The EU's anti-trust commissioner, Joaquin Almunia, said in a statement: "CDS's play a useful role for financial markets and for the economy. "Recent developments have shown, however, that the trading of this asset class suffers a number of inefficiencies that cannot be solved through regulation alone." The value of CDS - said to be in the region of $28 trillion (£17tn) dwarfs the worth of the instruments they are based on. As well as providing insurance against a bond going bad, CDS are also used for speculation, with banks and hedge funds trading in CDS to make money without actually owning the underlying bonds. During the height of the financial crisis there were concerns that speculation in CDS for bonds was driving down prices and fuelling market panic. - BBC