Saturday, March 28, 2009

OCC Issues Update On Bank Trading And Derivatives Activities

The Office of the Comptroller of the currency is out with their much anticipated quarterly report summarizing all the recent trends and losses (would say profits but not much here lately) in derivative trading at commercial banks.

Here is the report's summary.
  • The notional value of derivatives held by U.S. commercial banks increased $24.5 trillion in the fourth quarter, or 14%, to $200.4 trillion, due to the migration of investment bank derivatives business into the commercial banking system.
  • U.S. commercial banks lost $9.2 billion trading in cash and derivative instruments in the fourth quarter of 2008 and for the year they reported trading losses of $836 million. The poor results in 2008 reflect continued turmoil in financial markets, particularly for credit instruments.
  • Net current credit exposure increased 84% from the third quarter to a record $800 billion, and much of this is attributable to the sharp decline in interest rates in the fourth quarter.
  • Derivative contracts remain concentrated in interest rate products, which comprise 82% of total derivative notional values. The notional value of credit derivative contracts decreased by 2% during the quarter to $15.9 trillion. Credit default swaps are 98% of total credit derivatives.
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