On March 26, Archegos Capital Management (ACM), a US private investment firm, defaulted on its margin calls. ACM’s investment strategy harked back to the dark days of the global financial crisis—trades that combined high leverage with opaque financial instruments and left prime brokers exposed to a sharp sell-off when they went the wrong way.

The ACM episode has hit at least two lenders particularly hard—Nomura, Japan’s eighth largest bank with assets amounting to USD 405 billion, and Credit Suisse, a designated global systemically important bank, with total assets of USD 910 billion. Unsurprisingly, markets remain nervous about whether there could be more nasty surprises to come.

This note considers the potential contagion to ASEAN+3 financial systems from any further shocks to Nomura and Credit Suisse, using the Systemic Network of World Expected-Losses of Institutions (“SuNWEI”) model. The stress tests assume several separate scenarios, including replicating probabilities of default equivalent in size to those recorded during the Asian and global financial crises.

Authors: Li Lian Ong, Wei Sun