The last-minute proposal from BNP, which is in talks with policymakers about it, adds another twist to the intense debate ahead of a crucial European summit on Sunday. BNP’s plan is that the EFSF should write credit default swaps – a form of protection in the case of a default – for investors who have participated in Italian and Spanish auctions.
But the timing of the proposal is controversial, coming in the same week as the European Union agreed to make permanent its ban on so-called naked CDS, the practice of buying the insurance as a straight bet rather than using it to reduce risk on other underlying positions.
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