The $200 Trillion Bankers

The Office of the Comptroller of the Currency (Department of Treasury) is one of the banking industry’s primary watchdogs. And as traditional investment banks jumped into the commercial banking world after the fall of Lehman Bros. and the collapse of the stock market on September 15, 2008, as companies like Goldman Sachs and Morgan Stanley added commercial banking to their basket of financial assets, the regulators had new players to deal with. And these new companies brought some interesting new assets with them.

Want some scary numbers? Like how big the derivative market really is? Take this quote from the OCC in a report dealing with 4^th quarter (2008) banking and trading: "The notional value of derivatives held by U.S. commercial banks increased $24.5 trillion in the fourth quarter, or 14%, to $200.4 trillion, due to the migration of investment bank derivatives business into the commercial banking system. [emphasis added]"

Fortunately (??), those derivatives are concentrated primarily in five banks (96% of the total industry notional amount and 81% of industry net current credit exposure, according to the OCC): CitiGroup, Bank of America, JP Morgan Chase, HSBC Holdings and Goldman Sachs.

The April 2^nd theDeal.com added this calming (yeah, right) analysis: “The overwhelming majority (82%) of derivative contracts remain concentrated in interest rate products, with notional value of credit derivatives actually pulling back 2% in the fourth-quarter 2008 to $15.9 trillion. Credit default swaps [literally loan default insurance], which account 98% of credit derivatives, were once estimated to comprise a $60 trillion market.

“Nevertheless, the OCC said that ‘the net current credit exposure increased 84% from the third quarter to a record $800 billion, and much of this is attributable to the sharp decline in interest rates in the fourth quarter.’”

A hundred trillion here and a hundred trillion there, and sooner or later, you’re talking real money. Funny, I don’t seem to be sleeping as well as I used to. I think someone needs to redesign the Monopoly board game.

I’m Peter Dekom, and what was I thinking?!