Risk.net: A Sharp Turning Point in CCP Credit Risk

For anyone who shudders at the mere thought of a clearing house failure, the latest bank-sourced data from Credit Benchmark could make for uncomfortable reading.

After improving by more than 5% from November 2017 to September 2019, the credit risk of 30 central counterparties (CCPs) reversed sharply at the end of last year. The 2.6% deterioration seen in October and November was the worst in two years, and compares with a drop of less than 2% following the default of power trader Einar Aas at Nasdaq Clearing in September 2018.

The sudden shift in sentiment defies easy explanation.

In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, looks at the shifting credit trend and activity of a group of CCPs.

Also this month, the Brexit Effect on EU and UK banks; plus a comparison of UK and US Healthcare trends – both regions experienced choppy fluctuations in credit quality in the past two years. We also examine the diverging credit trends of software and hardware tech companies amidst a climate of political pressure.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.