Off-balance-sheet exposures at JP Morgan climb $19.8bn in Q3

Goldman Sachs expands off-balance-sheet exposures 10% quarter-on-quarter

Systemically important US lenders added a net $59.5 billion of off-balance-sheet exposures in the third quarter, with JP Morgan alone accounting for one-third of the aggregate increase.

The eight US global systemically important banks (G-Sibs) disclosed a combined $4.33 trillion gross notional for these types of exposures as of end-September, a 1.4% increase on Q2 and a year-on-year expansion of 3.1%. 

In notional terms, JP Morgan saw exposures climb the highest over the quarter, by $19.8 billion (1.8%) to $1.15 trillion, followed by Goldman Sachs with a $16 billion (10.2%) expansion to $172.9 billion.


BofA Securities reported that its off-balance-sheet exposures rose by $13.2 billion (1.4%) to $934.5 billion and Morgan Stanley had an uptick of $9 billion (5.5%) to $170.9 billion. Citi experienced a rise of $1.5 billion (0.1%) to $1.16 trillion, and State Street saw an expansion of $931 million (2.4%) to $39 billion.

Off-balance-sheet exposures stayed flat on the quarter at Wells Fargo at $645.5 billion, while they fell at BNY Mellon by $1.1 billion (2%) to $52.9 billion.

In aggregate, off-balance-sheet exposures accounted for 9.7% of the banks’ aggregate leverage exposures in Q3, once converted to credit-equivalent amounts.

Citi has the largest share of its total leverage exposure made up of these items, at 12.3% of its total, and BNY Mellon the smallest, at 5.3%.

What is it?

US banks report the gross notional amount of their off-balance-sheet exposures as part of their quarterly supplementary leverage ratio disclosures. The total is calculated as the average of the amount outstanding on the last day of each of the three months of the preceding quarter. Excluded are off-balance-sheet exposures related to repurchase agreements and derivatives, which are reported separately.  

According to the Federal Reserve, off-balance-sheet exposures include commitments, guarantees, and those special-purpose vehicles and securitisations that are not consolidated on banks’ balance sheets.  

Credit conversion factors are then applied to the gross notionals to produce a credit-equivalent amount for these off-balance-sheet exposures. It is this amount that is then factored into the banks’ total leverage exposures.

Why it matters

Like clockwork, US G-Sibs grow their off-balance-sheet exposures during the first three quarters of each year, before reining them in during the final three months.

There is a purpose driving this pattern. Big banks are incentivised to tidy up their books before the end of each year, because that is when the Federal Reserve takes a snapshot of their balance sheets to set systemic risk capital charges.

Year-end leverage ratios are also used as the starting point for Fed-run annual stress tests. The healthier a bank’s SLR going into the tests, the more likely it is that they will be able to vault post-stress minimum leverage capital requirements. 

The sensitivity of banks to these year-end assessments has all sorts of unintended consequences. As concerns off-balance-sheet exposures, it may incentivise big banks to wind in credit lines and cut down liquidity facilities in December, leaving clients with fewer resources to hand should they need cash at short notice. 

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