• (p40-41) - While the multi-sector CDS portfolio was the primary trigger for market concerns regarding AIGFP‟s exposure to the deteriorating mortgage market, the potential termination of AIG‟s largest credit book, the regulatory capital portfolio, from a bankruptcy filing had the potential to cause significant problems for numerous European banks.
• The regulatory capital swaps allowed financial institutions that bought credit protection from AIGFP to hold less capital than they would otherwise have been required to hold by regulators against pools of residential mortgages and corporate loans.
  • A hypothetical example helps illustrate how this worked. 

2010 0610 - COP - Report - The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy - 337p