An official website of the United States government
News Release 2012-176
December 20, 2012
Share This Page:
WASHINGTON — Insured U.S. commercial banks and savings institutions reported trading revenue of $5.3 billion in the third quarter of 2012, $3.3 billion, or 166 percent higher than in the second quarter, but $3.2 billion, or 38 percent lower than in the third quarter of 2011, the Office of the Comptroller of the Currency reported today in the OCC's Quarterly Report on Bank Trading and Derivatives Activities.
"It was a fairly robust revenue performance, given the macroeconomic uncertainties that prevailed during the third quarter,” said Martin Pfinsgraff, Deputy Comptroller for Credit and Market Risk. “Declining bank credit spreads created some headwinds due to the valuation adjustments on derivatives payables and debt accounted for under fair value accounting,” said Mr. Pfinsgraff. “Notwithstanding the costs associated with relatively large, negative, valuation adjustments, trading revenues were the fourth highest on record for any third quarter.”
OCC reported that results from credit trading remain a drag on trading revenues, but the smaller scale of losses on credit contracts drove the improvement in trading revenues vs. the second quarter. “Trading revenues in the second quarter were unusually weak, because of over $4 billion of losses from credit contracts primarily related to JPMorgan Chase unwinding CIO positions. In the third quarter, banks again reported losses from credit trading, but $3 billion less than last quarter,” said Mr. Pfinsgraff.
The losses on credit trading in the third quarter distort actual performance, since some banks report the results of hedges of their valuation adjustments in credit trading, while the offsetting changes of the adjustments themselves are spread across trading revenue categories. The OCC reported that net current credit exposure (NCCE), the primary metric the OCC uses to measure credit risk in derivatives activities, decreased $11 billion, or 3 percent, to $399 billion during the third quarter. “It is a bit unusual, from an historical perspective, for credit exposures to fall when interest rates fall, as they did this quarter. But, as we discussed last quarter, the extended period of low interest rates is changing the sensitivity of swap portfolios,” said Mr. Pfinsgraff. “Receivables from interest rate contracts, which are 84 percent of all derivatives receivables, were virtually unchanged for the quarter at $4.2 trillion, even though swap yields fell approximately 10-20 basis points.”
The report shows that the notional amount of derivatives held by insured U.S. commercial banks rose $4.5 trillion, or 2 percent, from the second quarter to $227 trillion. Prior to this quarter’s increase, the notional amount of derivatives contracts had fallen for four consecutive quarters, due to ongoing trade compression activities. Declines in notionals are being driven by compression efforts by banks seeking to reduce regulatory capital requirements, as well as operating and risk burdens in their derivatives portfolios. Interest rate contracts increased $2.6 trillion, or 1 percent, to $181 trillion, while foreign exchange contracts rose 5 percent to $28 trillion.
OCC also reported
A copy of the OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Third Quarter 2012 is available on the OCC’s Website.
Bill Grassano (202) 649-6870