We investigate how much of the CIP (covered interest parity) deviation ob- served in FX swap markets during the ?nancial crisis can be explained by credit risk. To this end, we develop a structural model of defaultable FX swaps, applying the approach of Coval et al (2009a,b) to the FX setting. Calibrating the model to the CDS spreads of Korean banks and US banks, we ?nd that as much as 65% of the CIP deviation in the US Dollar / Korean Won FX swaps can be explained by counterparty risk; most of this e¤ect is due to the counterparty risk of Korean banks (as opposed to US banks). The in?uence of counterparty default risk is pronounced especially for the period after the default of Lehman Brothers.