With Credit Suisse possibly on the brink, the Office of Financial Research from this week: When choosing counterparties, banks tend to pick riskier ones and do not hedge such exposures.
These exposures are correlated with systemic risk measures despite greater regulatory oversight after the crisis.
Source: https://www.financialresearch.gov/working-papers/files/OFRwp-22-06_counterparty-choice-bank-interconnectedness-and-bank-risk-taking.pdf
Abstract
We investigate whether banksโ counterparty choices in OTC derivative markets contribute to network fragility. We use novel confidential regulatory data and show that banks