Europe’s clearing houses have passed their first continent-wide stress test.

The risk houses, known as central counterparties (CCPs), sit between a buyer and a seller in a trade as a way of preventing systemic risk.

However, given their increasing importance post financial crisis, there have been concerns that clearing houses themselves could be the root cause of another financial meltdown.

That has led EU securities watchdog ESMA to test their resilience when a extreme market conditions occur, much like the European Banking Authority has been doing with the region's major lenders.

At the end of April, ESMA tested for multiple defaults at 17 clearers, including LCH.Clearnet and Eurex.

Collectively the CCPs hold more than €150bn of default resources and have more than 900 clearing house members.

“Overall European CCPs are well equipped to face the counterparty risk associated with the considered stress scenarios,” said ESMA chair, Steven Maijoor.

Liquidity risk wasn’t tested by the regulator this time around, although further tests are in the pipeline.

Under more severe stress scenarios, the CCPs did face small amounts of uncovered losses varying from €0.1bn up to €4bn Euros, although Maijoor said such a default scenario would be “extreme”.

In extreme cases, clearing members could face “significant losses”, ESMA added, which in turn could trigger the default of further clearing members and additional losses at CCP level.

Therefore, ESMA has recommended that CCPs incorporate in their creditworthiness assessment of clearing members, the potential exposures they may face due to their membership in other CCPs.

Under the European Market Infrastructure Regulation (EMIR),  ESMA has to conduct EU-wide stress tests of CCPs on an annual basis.