The cost of insuring against global bank defaults has plunged to its lowest level since the financial crisis in a sign that investors are willing to bet the industry has become safer.
Buyers of bank debt often purchase “credit default swaps,” a type of derivative that helps insure their investments against a default. The price they are paying for that protection is now the lowest since the collapse of Lehman Brothers in September 2008.
“We’ve gone back to pre-crisis levels,” said Brian Monteleone, analyst at Barclays. “Capital is much higher today than it was pre-crisis. The economic environment is vastly improved. Regulations are in place today that didn’t exist five to 10 years ago that increase confidence that the ability of banks to get too levered is reduced.”