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Default Swaps Broken for U.K. Bank Bonds as Brexit Vote Nears

  • U.K. regulation requires banks to sell loss-absorbing debt
  • Contracts don’t cover holding company bonds, riskiest notes

It’s becoming increasingly difficult to insure U.K. bank bonds, just when debt protection is needed most.

Because post-crisis regulation requires the lenders to issue securities from parent holding companies, at least 114 billion euros ($129 billion) of notes are excluded from insurance coverage. Nonetheless, trading of credit-default swaps surged before Thursday’s vote on Britain’s membership in the European Union.