The ISDA, the association of swaps dealers, says markets should not be concerned about the big payouts in the credit default swap market as these positions are market to market daily and banks and other participants have already posted collateral for their positions. Still the markets remain rattled…

“Sellers of protection mark their positions to market every single day. So those firms have already marked down and provided collateral against their positions. As a result, there should be little or no unanticipated additional cost involved in the settlement of Lehman CDS,” said Mr Shirvani, who is co-head of European credit at Credit Suisse. Net exposures were usually about 2 per cent of the gross amount, which vastly reduced the potential cashflows. Assuming $365bn of gross exposure, this would translate into $7.3bn if these estimates are correct.

“Despite immoderate claims relating to the magnitude of the Lehman settlement, these are insignificant when put into the context of $5 trillion in payments on foreign exchange transactions that occur each and every day,” he said.

Some analysts remain concerned that CDS pay-outs might be concentrated with certain banks or hedge funds, causing them liquidity problems.