OCC Reports Record Quarterly Bank Trading Revenues of $7 Billion

WASHINGTON – Insured U.S. commercial banks posted a record $7 billion in trading revenues during the first quarter of 2007, 24 percent higher than the first quarter of 2006, and 82 percent higher than the fourth quarter of 2006, the Office of the Comptroller of the Currency reported today in the OCC's Quarterly Report on Bank Derivatives Activities.

"Once again we see the seasonal strength of bank trading revenues," said Deputy Comptroller for Credit and Market Risk Kathryn E. Dick. "Revenues were strong across the board as they typically are in the first quarter, reflecting strong client demand, favorable positioning results, and the impact of accounting changes."

Ms. Dick noted that revenues from interest rate products set a record in the first quarter at $2.4 billion, 92 percent higher than in the first quarter of 2006. Revenues from equity products were also very strong at $1.7 billion, although they were off four percent from a very strong first quarter of 2006. Revenues from credit products, including credit derivatives, were $878 million in the first quarter, the first time banks have been required to report separately these revenues.

The OCC also reported that the notional amount of derivatives held by insured U.S. commercial banks increased $13.3 trillion, or 10 percent, to a record $145 trillion in the first quarter. The first quarter derivatives total is 31 percent higher than in the first quarter of 2006.

Credit derivatives, the fastest growing product in the derivatives market, increased 13 percent during the quarter to $10.2 trillion, a level 86 percent higher than in the first quarter of 2006.

"Because investors have faced very tight credit spreads and a flat-to-inverted yield curve for some time now, they have increasingly turned to more complicated and highly structured products, combining cash and derivatives instruments, in an attempt to meet their yield objectives," Ms. Dick said.

The OCC reported that the net current credit exposure, the primary metric the OCC uses to measure credit risk in derivatives activities, fell $5 billion, or 3 percent, to $179 billion. "The net credit exposure fell in the first quarter due to a strong increase in netting benefits," said Ms. Dick.

The report also noted that:

• Foreign exchange trading revenues increased 13 percent in the first quarter to $1.8 billion, while commodity/other revenues increased $286 million to $175 million.
• Derivatives contracts are concentrated in a small number of institutions. The largest five banks hold 97 percent of the total notional amount of derivatives, while the largest 25 banks hold nearly 100 percent.
• Credit default swaps are the dominant product in the credit derivatives market, representing 98 percent of total credit derivatives.
• The number of commercial banks holding derivatives increased by 32 in the first quarter to 954.

A copy of the OCC's Quarterly Report on Bank Derivatives Activities: First Quarter 2007 is available on the OCC's Website at: https://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq107.pdf.

Related Link

• Quarterly Report on Bank Derivatives Activities: First Quarter 2007 (PDF)