IPFS News Link • Economy - Economics USA
IPFS News Link • Economy - Economics USA
The latest quarterly report from the Office Of the Currency Comptroller is out and as usual it presents in a crisp, clear and very much glaring
format the fact that the top 4 banks in the US now account for a
massively disproportionate amount of the derivative risk in the
financial system. Specifically, of the $250 trillion in gross notional
amount of derivative contracts outstanding (consisting of Interest Rate,
FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial
banks (a number that swells to $333 trillion when looking at the Top 25
Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9%
of all derivative exposure (HSBC replaced Wells as the Top 5th bank,
which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion
in exposure, Citi with $56 trillion, Bank of America with $53 trillion
and Goldman with $48 trillion, account for 94.4% of total exposure. As
historically has been the case, the bulk of consolidated exposure is in
Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS
($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion,
respectively. And that's your definition of Too Big To Fail
right there: the biggest banks are not only getting bigger, but their
risk exposure is now at a new all time high and up $5.3 trillion from Q1
as they have to risk ever more in the derivatives market to generate
that incremental penny of return.