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OCC’s Quarterly Report on Bank Trading and Derivatives Activities

  • Insured U.S. commercial banks and savings associations reported trading revenue of $7.7 billion in the first quarter, $3.2 billion higher (71.6%) than the fourth quarter, and $1.5 billion higher ( 23.9%) than the first quarter of 2014.
  • Credit exposure from derivatives increased in the first quarter. Net current credit exposure (NCCE) increased $146.8 billion quarter-over-quarter, or 41.2%, to $502.9 billion.Trading risk, as measured by Value-at-Risk (VaR), increased in the first quarter. Average VaR across the top 5 dealerbanking companies rose $47 million, or 14. 4%, to $373 million.
  • Notional derivatives fell $17.2 trillion, or 7.8%, to $203.1 trillion, due to continued trade compression activities.Derivative contracts remain concentrated in interest rate products, which comprise 77.7% of total derivative notional amounts. Credit derivatives, which represent 4.4% of total derivatives notionals, declined 4.6% from the fourth quarter to $9.0 trillion.
The OCC’s quarterly report on bank trading and derivatives activities is based on call report information provided by all insured U.S. commercial banks, savings associations and trust companies (collectively, “banks”), reports filed by U.S. financial holding companies, and other published data. Beginning in the first quarter of 2012, savings associations reported their financial results in the call reports. As a result, their trading and derivatives activity is now included in the OCC’s quarterly derivatives report. A total of 1,427 insured U.S. commercial banks and savings associations reported derivatives activities at the end of the first quarter, 29 more than in the fourth quarter. Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions. Four large commercial banks represent 91.3% of the total banking industry notional amounts and 80.3% of industry NCCE [emphasis added]. The OCC and other supervisors have examiners on-site at the largest banks to evaluate continuously the credit, market, operational, reputation, and compliance risks of bank derivatives activities. In addition to the OCC’s on-site supervisory activities, the OCC continues to work with other financial supervisors and ma jor market participants to address infrastructure, clearing, and margining issues in over-the-counter (OTC) derivatives. Activities include development of objectives and milestones for stronger trade processing and impro ved market transparency across all OTC derivatives categories, migration of certain highly-liquid products to clearinghouses, and requirements for posting and collecting margin.”

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