Office Of Financial Research Update - âStressed To The Core: Counterparty Concentrations And Systemic Losses In CDS Marketsâ

The OFR released a working paper today, entitled, “Stressed to the Core: Counterparty Concentrations and Systemic Losses in CDS Markets,” and an accompanying blog by Stacey Schreft, OFR Deputy Director for Research and Analysis. The paper applies the Federal Reserve’s supervisory stress test scenarios to examine the impacts on banks — and the banking system as a whole — from default of their largest counterparties in the credit derivatives markets. The authors find higher loss concentrations for the banking system than for individual firms and potential for large indirect losses when a major counterparty defaults.