Should the ECB stress-test counterparty default risks?
The US Fed already does, but it is notable that EU banks were less exposed to Archegos
Counterparty credit risk experts say the European Central Bank (ECB) should take a leaf out of the US Federal Reserve’s book and make banks conduct comprehensive stress-testing of major derivatives counterparty defaults. This would help to ensure risk managers take steps to avoid a repeat of the losses suffered when highly leveraged family office Archegos collapsed in 2021.
The Fed’s annual comprehensive capital analysis and review (CCAR) includes a component that requires the major dealers to
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