The International Swaps and Derivatives Association on Dec. 17 published a paper on the “empty creditor” hypothesis.

Empty creditors, according to the theory, are lenders who have hedged their loans or bonds with default-swaps, and as a result have little incentive to support the company they lend to, preferring to push it into bankruptcy in times of stress rather than agree a consensual restructuring.

“Although appealing on the surface, the empty creditor hypothesis is not consistent with either the way credit default swaps work nor with observed behaviours in debt markets. Further, the lack of compelling examples calls into question the validity of the hypothesis,” ISDA said in the report.

David Einhorn, founder of Greenlight Capital, argued in a letter to investors that credit-default swaps should be banned because those who use them have an incentive to see companies fail, according to a Financial Times article published on Nov. 6.

• ISDA paper