Derivatives Activity Up Slightly to Highest Level Ever

WASHINGTON, DC — Bank derivatives activity rose to $17.85 trillion in the first quarter of this year, the highest level ever, the Office of the Comptroller of the Currency (OCC) announced today. The previous high was $17.6 trillion in the third quarter of 1995. The figures are from bank call reports filed for the first quarter of 1996.

Trading revenues from bank derivatives were strong at $2 billion in the first quarter, an increase of $413 from the previous quarter.

Bank credit exposure from derivatives continued to decline. Credit exposure decreased by $7 billion in the first quarter, slightly less than the $12 billion decline in credit exposure for the previous quarter.

Derivatives Activity: The notional amount of bank derivatives activity rose by $987 billion in the first quarter to $17.85 trillion. That compares to a decline in the previous quarter of $778 billion. (see tables 1 and 3 and graphs 1, 2, and 3).

The notional amount of interest rate and foreign exchange contracts rose in the quarter while commodity and equity contracts declined. Interest rate contracts, which comprise 66 percent of derivatives contracts, rose by $725 billion to $11.8 trillion; foreign exchange contracts, which comprise 32 percent of derivatives contracts, rose by $262 billion to $5.6 trillion. Commodity and equity contracts, which make up 2 percent of derivatives contracts, were virtually unchanged at $378 billion. (see table 3, graph 3).

The number of banks holding derivatives declined by nine in the first quarter to 549 banks.

Derivatives continue to be concentrated in the largest banks.

Revenues: Revenues from trading activities, which include off-balance sheet derivatives and cash instruments, rose 26 percent from the previous quarter. One third of the first quarter revenues are attributable to one bank, Morgan Guaranty Trust, which realized $637 million in trading revenues for the quarter. (see table 7, graph 6).

Credit Exposure: The top nine banks' credit exposure from derivatives declined from 250 percent to 234 percent of risk based capital. The decline in credit exposure from derivatives is mostly a result of increased use by banks of bilateral netting to reduce exposure. (see table 4, graph 5a and 5b)

Market Risk: Banks continue to maintain relative balance in their exposure to market risk. This risk is measured by positive and negative fair values of derivatives portfolios. (Positive fair value shows what a bank's counterparty would owe the bank if its contract were liquidated today; negative fair value shows what the bank would owe the counterparty if the contract were liquidated today.) Relatively balanced bank books mean that the value of positions where the bank could have a gain do not significantly differ from the positions where the bank could have a loss. (See table 6).

Structured Notes: Structured notes and high-risk mortgage securities showed depreciation in value in the aggregate during the first quarter stemming mostly from an increase in interest rates during the quarter.

Structured notes were held by 4,041 banks in the first quarter, a decline of 233 from the previous quarter. (See tables 8 and 9, graphs 10 and 11).

A copy of the tables can be obtained through the OCC Information Line at (202) 479-0141, document number 79667.

Related Link

• Glossary of Terms (PDF)
• Derivatives Data - First Quarter 1996 Call Report Fact Sheet (PDF)