FOR IMMEDIATE RELEASE
March 25, 1999
Contact: Sam Eskenazi
OCC Reports Bank Trading Revenues Rebound to $2 Billion during Fourth Quarter
WASHINGTON — Bank trading revenue rebounded in the final three months of 1998, as commercial banks took in nearly $2 billion following a decline in the third quarter. For the year, revenues from trading activities reached $7.9 billion compared with $8 billion in 1997, the Office of the Comptroller of the Currency reported today in its fourth quarter Bank Derivatives Report.
The OCC's report showed that much of the increase in revenue resulted from changes in interest rates affecting the values of both cash and off balance sheet positions. Revenue from interest rate positions bounced back to $669 million in the fourth quarter, compared to a loss of $284 million in the previous three months.
Revenue increased in several other trading categories during the final three months of 1998. Commercial banks earned $64 million from commodity and other positions, up from a loss of $222 million in the previous three months, and recorded $92 million in revenue from equity positions, up from a loss of $65 million in the third quarter.
Michael L. Brosnan, the OCC's deputy comptroller for risk evaluation, said the rebound in trading and derivatives revenue resulted from the stabilization of the financial markets during the fourth quarter.
"The fourth quarter marked a return to stability, " Mr. Brosnan said. "By contrast, the previous three months were characterized by extreme volatility in both domestic and foreign markets, including the default in Russia. That volatility led to unexpected losses on trading positions at a number of banks."
Mr. Brosnan said banks should learn from the experience of the third quarter.
"Bank risk managers would be wise to adjust stress testing, risk limits and other risk control tools to recognize the reality that such extreme conditions will periodically arise," he said. "The guidance issued by the OCC in January discusses risk management practices that, if fully implemented, would help reduce banks' vulnerability to the potential recurrence of financial performances like those witnessed in late 1997 and the third quarter of 1998."
The notional volume of all derivative products increased for the 13th consecutive quarter, finishing 1998 at $32.9 trillion. Interest rate and foreign exchange contracts continued to comprise the majority of derivatives transactions.
The notional volume of credit derivatives, which the OCC began tracking in 1997, slipped to $144 billion at the end of the year, down from $162 billion in the third quarter.
Other highlights of the fourth quarter derivatives report include:
A copy of OCC Bank Derivatives Report — Fourth Quarter 1998 may be obtained by:
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