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WASHINGTON — Insured U.S. commercial
banks posted a record $18.8 billion in trading revenues in
2006, up 31 percent from the previous annual record of $14.4
billion set in 2005, the Office of the Comptroller of the
Currency reported today in the OCC Quarterly Report on
Bank Derivatives Activities. In the fourth quarter, commercial banks generated revenues of $3.9 billion from trading cash instruments and derivative products, off slightly from the $4.5 billion in trading revenues for the third quarter of 2006.
“Bank trading revenues have been strong the past few years due in large part to robust client demand, especially from large institutional investors such as hedge funds,” said Deputy Comptroller for Credit and Market Risk Kathryn E. Dick.
The OCC also reported that the notional amount of derivatives held by insured U.S. commercial banks increased $5.3 trillion, or 4 percent, to a record $131 trillion in the fourth quarter, 30 percent higher than year-end 2005.
The report noted that a fast-growing
area has been credit derivatives, which increased to $9.0
trillion at year-end 2006, representing a 55 percent increase
from the $5.8 trillion reported at year-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,” 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, increased a modest $9 billion, or 5
percent, to $185 billion.
“We spend a lot of time supervising these credit exposures,
because they are large and systemically important,” Ms. Dick
said. “That said, we recognize 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.”
The report also noted that:
Foreign exchange trading revenues increased 19 percent in
the fourth quarter to $1.6 billion. Interest rate revenues
increased 109 percent to $1.2 billion. Equity revenues
decreased 34 percent to $1.2 billion, and commodity/other
revenues decreased 114 percent to a loss of $111 million in
the fourth quarter.
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.
The number of commercial banks holding derivatives
increased by nine in the fourth quarter to 922.
A copy of the OCC’s Quarterly
Report on Bank Derivatives Activities: Fourth Quarter
2006
is available on the OCC’s Web
site at:
http://www.occ.gov/ftp/deriv/dq406.pdf.
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