  Counterparty risk denotes the risk that a party defaults in a bilateral
contract. This risk not only depends on the two parties involved, but also on
the risk from various other contracts each of these parties holds. In rather
informal markets, such as the OTC (over-the-counter) derivative market,
institutions only report their aggregated quarterly risk exposure, but no
details about their counterparties. Hence, little is known about the
diversification of counterparty risk. In this paper, we reconstruct the
weighted and time-dependent network of counterparty risk in the OTC derivatives
market of the United States between 1998 and 2012. To proxy unknown bilateral
exposures, we first study the co-occurrence patterns of institutions based on
their quarterly activity and ranking in the official report. The network
obtained this way is further analysed by a weighted k-core decomposition, to
reveal a core-periphery structure. This allows us to compare the activity-based
ranking with a topology-based ranking, to identify the most important
institutions and their mutual dependencies. We also analyse correlations in
these activities, to show strong similarities in the behavior of the core
institutions. Our analysis clearly demonstrates the clustering of counterparty
risk in a small set of about a dozen US banks. This not only increases the
default risk of the central institutions, but also the default risk of
peripheral institutions which have contracts with the central ones. Hence, all
institutions indirectly have to bear (part of) the counterparty risk of all
others, which needs to be better reflected in the price of OTC derivatives.
