The aim of this article is to assess the scale and systemic nature of counterparty credit risk (CCR) stemming from banks’ derivatives activities and securities financing transactions. Using supervisory data, along with data collected from the EU-wide stress test carried out by the European Banking Authority in 2023, the article analyses the distribution of CCR across banks. It focuses on the concentration of risk within specific bank business models and products, and on links between the banking and NBFI sectors. It also examines not only the role of collateral in risk mitigation but also its potential negative impact on systemic risk. Exposures to CCR are concentrated in a group of global systemically important banks (G-SIBs) and investment banks, which play a vital intermediation role in European financial markets. Banks’s counterparties mainly operate in the non-bank financial intermediation (NBFI) sector. To quantify systemic risk in a network of CCR exposures, we use stress test techniques to see how widely hypothetical defaults among more vulnerable NBFI counterparties may spread across the banking system. In such an event, banks under European banking supervision may face considerable losses.
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