CreditSights, a rating agency, says that the European implied default rate, assuming a 20% recovery rate, reached 25% at the end of last year but has since fallen to 15%.

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To see how this affects funding costs, look at credit default swaps, which typically assume a 40% recovery rate in the event of default.

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On a break-even basis, this is basically saying that you would start losing money if you started to realize more than a 13% annual default rate for the next 5 years, if you had lower than the historical recovery rates of 40 cents.

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