Big Bank Theory: $250 Trillion Tender. JPM BoA GS MS. Bang!Submitted by Mark Twain on Sun, 09/25/2011 - 14:13
Bet of the Century! Big Bank Theory! Tender ready to blow!
Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure;
US Office Of the Currency Comptroller
The latest quarterly OCC report... 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. The top 4 banks:
- JPM with $78.1 trillion in exposure
- Citi with $56 trillion
- Bank of America with $53 trillion
- Goldman with $48 trillion
They account for 94.4% of total exposure (US). 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 $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.
Is Morgan Stanley Sitting On An FX Derivative Time Bomb?