Crédit Agricole grew OTC derivatives notionals 17% in 2020

Bank pulls ahead of SocGen as third-largest European derivatives bank but risks incurring a higher G-Sib score

Crédit Agricole leapfrogged Societe Generale to become the third-largest dealer of over-the-counter derivatives during 2020, according to data from the European Banking Authority (EBA).

Crédit Agricole had €16.2 trillion ($19 trillion) of OTC derivatives notionals outstanding at end-2020, up 17.2% year on year, systemic risk disclosures collated by the regulatory agency show. SocGen’s notionals grew 3.9% over the same period, to €14.8 trillion.



This left Crédit Agricole trailing only Deutsche Bank and BNP Paribas, whose notionals were down 1.9% to €31.2 billion and flat at €20.5 billion, respectively, at end-2020.

Deutsche Bank accounted for 21.1% of all OTC derivatives notionals reported by the 31 European banks that participated in this year’s assessment. BNP Paribas made up 13.8% and Crédit Agricole 10.9%.

Among the eight EU global systemically important banks (G-Sibs), only BPCE posted faster growth in notionals than Crédit Agricole – of 21.4% to €6.1 billion.

Rabobank, LBBW and SEB reported the largest percentage increases in the EBA sample, of 28.7%, 39.4% and 45.5%.



What is it?

The Basel Committee gathers data from the 75 largest banks by leverage exposure, along with that of all banks designated as G-Sibs in the previous year, to gauge the systemic risk of individual firms.

Data is gathered to populate the 12 systemic indicators spread across five broad categories: size; interconnectedness; substitutability; complexity; and cross-jurisdictional activity.

Each lender’s individual indicator amounts are divided by the sum of the amounts for all big banks in Basel’s sample to find their systemic risk score. This means that if a bank’s indicator amounts grow faster than the aggregate, its systemic risk score will rise. If the amounts grow in line with the aggregate, the firm’s score will stay the same. The higher the score, the higher the assigned G-Sib capital add-on.

OTC derivatives make up one of the complexity indicators. The values that underlie this indicator are OTC derivatives notionals, split into cleared and bilateral trades.

The European Banking Authority discloses the systemic indicator data from the largest institutions across the European Union, whose leverage exposures exceed €200 billion.

From January 2020, the UK has no longer been an EU member state, meaning the EBA has stopped publishing data for the six banks previously included – Barclays, HSBC, Lloyds, Nationwide, RBS and Standard Chartered. The year-on-year analysis, therefore, covers the 31 institutions that reported in both 2019 and 2020 only.

Why it matters

The steep rise in OTC derivatives notionals outstanding at Crédit Agricole over 2020 stands in sharp contrast to the flat or deflating figures reported by top-of-the-league BNP Paribas and Deutsche Bank. It also puts the French bank at risk of slipping into a higher G-Sib capital requirements bucket come November.

Notionals at the bank rose way faster than the average 5.8% registered across the EBA’s sample. Globally, notionals rose 4.2% over the year, according to Bank for International Settlements data.

Because of the way the G-Sib assessment works, by weighting increases in the 12 indicators at each bank against the change in aggregate, lenders that report out-of-kilter growth in a certain area can see their G-Sib score increase. This could put Crédit Agricole at risk of slipping from the first into the second G-Sib bucket, which would hike its Common Equity Tier 1 capital requirement by 500 basis points.

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