US commercial banks’ trading revenues down 21.5%

Total cash and derivative trading revenues at US commercial banks decreased by $508 million, to $1.86 billion, in the final quarter of 2002, according to research from the Office of the Comptroller of Currency (OCC).

The US bank regulator's latest quarterly report on banks’ derivatives trading activity shows that the total notional outstandings of derivatives contracts held by US commercial banks increased by $2.9 trillion, to $56.1 trillion, during the same period.

The credit derivatives segment of the market had the largest proportionate increase in notional size. During the fourth quarter, the credit derivatives market grew by 10.8% to $635 billion. The total notional of protection sold increased by $20 billion to $291 billion. The total notional of protection bought increased by $41.6 billion to $343 billion.

Kathryn Dick, Washington-based deputy comptroller for risk evaluation at the OCC said the decline in the value [on the back of tightening credit spreads] of credit derivative hedges of loan portfolios is a “major factor” to take into account when comparing figures for the third and fourth quarters.

Total credit exposure - consisting of current mark-to-market exposure after netting benefits, and potential future exposure - increased by $24 billion to $594 billion during the fourth quarter. “The increase in credit exposure resulted primarily from the growth in notional amounts, particularly for interest rate contracts maturing beyond five years,” Dick said.