OCC reports increase in CDS use by US banks

The US Office of the Comptroller of the Currency (OCC) reported that the notional amount of credit derivatives held by insured US commercial banks rose to $9.0 trillion at the end of 2006. This represents a 55% increase from the $5.8 trillion reported at the end 2005.

“The continued strong growth of credit derivatives reflects their importance as a source of managing and dispersing risk, and we do not foresee any decline in the significance of this class of derivatives in future time periods,” says Kathryn Dick, deputy comptroller for credit and market risk.

The OCC reported that the net current credit exposure, the primary metric the OCC uses to measure credit risk in derivatives activities, increased a modest $9 billion, or 5%, to $185 billion.

“We spend a lot of time supervising these credit exposures, because they are large and systemically important,” says Dick. “That said, we recognise that a meaningful portion of this exposure is secured by cash and government securities, and that is one reason why charge-offs on derivatives exposures remain so low.”