US, EU clearinghouse stress tests in `infancy,’ need broadening, Fed working paper says

14 December 2018 12:22am
US and European authorities’ stress tests of derivative clearinghouses should be conducted more often and substantially broadened to cover more jurisdictions, banks and risk scenarios, a US Federal Reserve staff working paper said.

The changes are needed if the tests are to capture the impact of bank or clearinghouse collapses on the global financial system, said analysts with the Fed, the UK’s Financial Conduct Authority and an Intercontinental Exchange clearinghouse.

US and European regulators’ testing “is in its infancy,” the analysts said in the paper, posted earlier this month. “There is substantial scope to better understand the implications of system-wide stress shocks,” they wrote.

The US Commodity Futures Trading Commission and the European Securities and Markets Authority have each conducted two systemic exercises since 2016 to complement stress tests conducted by individual clearinghouses.