The European Central Bank on Friday highlighted the dangers to the stability of the financial system of credit derivatives, the products used to protect investors against bond defaults.

It warned that counter-party risk remained a big concern among Europe’s banks as credit default swaps contracts, which pay out when a company defaults on its bonds, were increasingly concentrated in the hands of a few large institutions. The top 10 counter-parties of the leading European banks, often other banks, accounted for 60 per cent of CDS exposure, the ECB said.