Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7409144 | Journal of Financial Stability | 2018 | 15 Pages |
Abstract
U.S. supervisory stress tests to date have focused on the resilience of large banks to withstand the direct effects of credit and trading shocks. Using data from Depository Trust & Clearing Corporation (DTCC), we apply the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) supervisory scenarios to evaluate the default of a bank's largest counterparty. We find that indirect effects of this default, through the bank's other counterparties, may be larger than the direct impact on the bank. Further, when taken as a whole, the core banking system has a higher exposure concentration to a single counterparty than does any individual bank holding company. We find that the U.S. banking system's counterparty exposure concentration has risen over the 2013-2015 period. Under the 2015 CCAR this corresponds to a market diversity with just over three counterparties under stress. Our results are the first to evaluate the U.S. credit derivatives market under stress and underscore the importance of a macroprudential perspective on stress testing.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics, Econometrics and Finance (General)
Authors
Jill Cetina, Mark Paddrik, Sriram Rajan,