Tom Jenkins, an expert at the Royal Bank of Scotland (RBS), stated yesterday that although the current credit default swap (CDS) situation is dangerous, Iceland’s bank are flexible enough to handle the difficulties they face in financial markets.
“The CDS for the Icelandic banks is high, but because of their flexibility in capitalization, and how quickly they adapt to new circumstances, they can weather the storm,” Jenkins said in an interview with Fréttabladid.
Jenkins said that the general opinion at the debenture market is that the Icelandic economic system is instable, which is one of the reasons for the high CDS for the Icelandic banks.
“To prevent the banks from suffering further from the debenture market’s evaluation of the Icelandic economic system, they have to focus on the efficient delivery of information to the market to try and change these attitudes,” Jenkins suggested.
CDS are percentage points added to the price of debentures in trade between banks and reflect the evaluation of the operational risk of the bank in question. The CDS of the Icelandic commercial banks is three to six times the CDS of comparable banks in Europe.