Why EU's naked sovereign CDS ban is difficult to comprehend

The ban on naked sovereign Credit Default Swaps (CDS) is not consistent with findings of research commissioned by the European Parliament.

It found a ban would harm market liquidity, impair instrument valuation and could ultimately increase borrowing costs for sovereign states, while research by the German Bundesbank found the larger cash bond and sovereign CDS markets were reacting to events as opposed to either dictating or distorting them. This makes the recent announcement, described by Michel Barnier, the EU’s financial services chief, as one “which strengthens financial stability” very difficult to comprehend. Deadlock The argument that naked sovereign CDS positions exacerbate strained balance sheets of sovereign...