OCC Reports Bank Quarterly Trading Revenues of $4.5 Billion
WASHINGTON — Insured U.S. commercial banks
generated revenues of $4.5 billion from trading cash instruments and
derivative products in the third quarter of 2006, the Office of the
Comptroller of the Currency reported today in its Quarterly
Report on Bank Derivatives Activities. For comparison purposes, banks
reported $4.7 billion from trading activities in the second quarter of
2006 and $4.9 billion in the third quarter of
2005.
“While trading revenues declined modestly in the
third quarter, we consider them to be quite strong considering the
weakness in interest rate and foreign exchange revenues,” Deputy
Comptroller for Credit and Market Risk Kathryn E. Dick said.
“Revenues from equity and commodity activities each set records, and that helped to soften the impact of much weaker interest rate and foreign exchange revenues, each of which was adversely
affected by a low volatility environment that caused weak client demand.”
The report noted that the notional amount of derivatives
held by insured U.S. commercial banks increased $7 trillion to a record $126 trillion in the third quarter, 6 percent higher than in the second quarter and 28 percent more than the third quarter in 2005. Consistent with previous quarters, bank derivatives activity remained concentrated in interest rate contracts, which represented 82 percent of total notionals.
Credit derivatives grew 20 percent to $7.9
trillion while equity derivatives increased 17 percent to $2.2 trillion
in the third quarter according to the OCC
report.
“We continue to see very strong growth in credit derivatives, as well as progress in reducing outstanding confirmations and improvement in overall infrastructure,” she said. “We are also pleased to see similar efforts now directed to equity derivatives.”
The net current credit exposure,
the primary metric the OCC uses to measure credit risk in
derivatives activities, fell 12 percent to $176 billion, the OCC
reported. “It’s important to keep the credit exposure numbers in
perspective,” Ms. Dick said. “Derivatives credit exposures are
simply another line of business in banks’ credit
portfolios.”
“These exposures generally
involve higher quality counterparties and collateral than are found
in the traditional commercial and industrial loan portfolio,” she
said. “While not all derivatives exposures are collateralized, those
that are typically are secured by cash or government securities
collateral.”
These factors explain why
charge-offs on derivatives exposures tend to be very low, Ms. Dick
said.
The report also noted
that:
Foreign exchange trading revenues
decreased 49 percent to $1.4 billion. Interest rate revenues
decreased 67 percent to $552 million. Equity revenues rose 1,676
percent to $1.8 billion, and commodity/other revenues rose 188
percent to $789 million.
Derivatives contracts are
concentrated in a small number of institutions. The largest five
banks hold 97 percent of the total notional amount of derivatives,
while the largest 25 banks hold 99 percent.
The number of commercial banks
holding derivatives increased by 11 in the third quarter to
913.
A copy of the OCC’s Quarterly Report on Bank
Derivatives Activities: Third Quarter 2006
is
available on the OCC’s Web site at: www.occ.gov.
# # #
The
Office of the Comptroller of the Currency was created by Congress to charter
national banks, to oversee a nationwide system of banking institutions, and to
assure that national banks are safe and sound, competitive and profitable, and
capable of serving the banking needs of their customers in the best possible
manner. OCC press releases and other
information are available at http://www.occ.gov. To receive OCC press releases and issuances
by email, subscribe at http://www.occ.gov/listserv.htm.