Bundesbank Board Member Praises Greek CDS Activation -Report

The activation of credit default swaps to holders of Greek government bonds under Greek law taking a loss in the wake of the Greek rescue will promote financial stability, Andreas Dombret, executive board member of Germany's central bank, the Deutsche Bundesbank, said on Monday in an interview with German business daily Handelsblatt.

On Friday, The International Swaps and Derivatives Association ruled that the steps Greece took to restructure its debt, namely by forcing private creditors to participate in the rescue effort, are enough to trigger compensation for CDS holders.

"Triggering the CDS contracts is positive from the perspective of financial stability," he told the paper, adding that bank supervisors have an interest in banks' being able to hedge risky holdings.

He also said it was important not to underestimate the negative impact of insurance that wouldn't work in the case of an emergency.