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Banks that trade OTC derivatives tend to pick nonbank counterparties with bank connections, creating 'risk propagation,' US study says

By Neil Roland ( September 22, 2022, 21:13 GMT | Insight) -- Large banks in the over-the-counter derivatives market are more likely to choose nonbank counterparties with multiple bank connections, potentially creating “risk propagation” among bank networks in this opaque market, a federal study said. Banks also tend not to hedge these exposures, partly because of a lack of availability of applicable credit-default swaps — amplifying banks’ vulnerability to the failure of their counterparties, the US Treasury’s Office of Financial Research study said.Large banks in the over-the-counter derivatives market are more likely to choose nonbank counterparties with multiple bank connections, potentially creating “risk propagation” among bank networks in this opaque market, a federal study released today said....

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