US commercial banks’ trading revenues down 21.5%

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.