CREDIT RISK TRANSFER

[sucheta_isi]

In Schweser Notes, under the heading there is one line " One study suggests that default swaps of SHORTER maturities than the maturities of the bank loans can provide effective CDS protection if the default risk is concentrated near or at the maturity of the loans"

Please explain how SHORTER maturity CDS will help?

 

[Sushilp]

I am not sure the following comment will help or not but will tell you anyway.
CDS protection is much needed on those times when there are significant cashflows from the credit entitiy. These times will be shorter than the maturity. So if CDS matures at these concentrated points then it serves the whole purpose of protection from default.