FOR IMMEDIATE RELEASE
March 13, 2000
Contact: Sam Eskenazi
OCC Reports that 4th Quarter 1999 Bank Derivatives Volume Drops; Trading Revenue Increases
WASHINGTON — The Office of the Comptroller of the Currency (OCC) today reported that derivatives revenue at U.S. commercial banks rose $335 million to $2.5 billion during the fourth quarter of 1999. The rise in trading revenues resulted primarily from increases in commodity and equity trading and in spite of modest revenue decreases in the interest rate and foreign exchange area where trading volumes are much larger.
The notional volume of derivatives at commercial banks decreased 2.4 percent to $34.8 trillion during the quarter. While the notional amount of interest rate derivatives decreased 1.6 percent to $27.8 trillion and foreign exchange derivatives decreased 7.3 percent to $5.9 trillion, the notional amount of credit derivatives increased 22 percent to $287 billion and other derivatives increased 4.5 percent to $843 billion. The figures are from the OCC's quarterly OCC Bank Derivatives Report.
Mike Brosnan, Deputy Comptroller for Risk Evaluation, said "The decline in derivative contract notional amounts was primarily due to a slow down in financial transactions during the fourth quarter as bank customers had front loaded their financing activities in previous quarters in preparation for Y2K."
"While system-wide trading revenues were strong, these figures can be and are influenced by the results achieved at a few large banks," he added.
Tracing the credit derivatives market from year-end positions since they were first reported in 1997, their notional volume has increased $236 billion to $287 billion at the end of 1999. Mr. Brosnan said that credit derivatives have the potential to address risks associated with credit concentrations and he said that he was encouraged by their growth as long as they are effectively managed.
The decline in the volume of interest rate derivatives was the first time since the OCC began collecting this data in 1990 that this type of derivative registered a decline.
During the quarter, the volume of futures and forward derivatives products continued their downward trend while options remained relatively level. Swaps continued to rise steadily and are the most dominant type of derivatives product.
For all banks, the book value of derivatives contracts 30 days or more past due totaled only $2.2 million, or .001 percent of total credit exposure from derivatives contracts. Quarterly charge-offs from derivatives totaled $141 million during the fourth quarter or about .04 percent of total credit exposure. By comparison, loan losses at commercial banks averaged .58 percent.
The OCC derivatives report also noted that:
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