The reason so many people are starting to choose Private Bullion Custodians over traditional Bullion Banks is the OTC Derivative.

These instruments of financial mass destruction lurk on the books of the largest banks in the world and could default to the tune of over $500 Trillion (yes that’s Trillion with a T) according to the Bank of International Settlements (BIS) in Basel Switzerland.

Would you want your gold sitting in the vault of a bank that could go insolvent overnight?

Neither would I.

ECB Highlights ‘Systemic Risk’ of Credit Swaps Market

By Paul Armstrong

Aug. 31 (Bloomberg) — The credit-default-swaps market is concentrated in the hands of a small group of dealers, which is stoking concern about “systemic risk to financial-market stability,” according to the European Central Bank.

The 10 most active counterparties in Europe account for 62 percent to 72 percent of the credit-swap exposure of lenders surveyed by the ECB, the Frankfurt-based central bank said in a report on its Web site after the market closed Aug. 28.

The credit default-swaps market has become more concentrated because of the failure of dealers and counterparties such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. LLC, the ECB said in the report, titled “Credit Default Swaps and Counterparty Risk.”

The “interconnected nature” of the credit-swaps market and its “structural opacity” may also increase risk, the ECB said.

“In practice, the transfer of risk through CDS trades has proven to be limited, as the major players in the CDS market trade among themselves and increasingly guarantee risks for financial reference entities,” according to the report.

Credit swaps are increasingly used as price indicators for bonds, loans and stocks, and further research is needed on the impact of swap prices on government bond ratings, the ECB said.

Access to data on aggregate credit swaps volumes has improved, but greater disclosure and transparency is needed on firms’ exposures, counterparty risk and swap pricing, the ECB said.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Original Article

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