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News Release 2015-93
June 29, 2015
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WASHINGTON — Insured U.S. commercial banks and savings institutions reported trading revenue of $7.7 billion in the first quarter of 2015, $3.2 billion higher (72 percent) than in the fourth quarter, the Office of the Comptroller of the Currency (OCC) reported today in the OCC's Quarterly Report on Bank Trading and Derivatives Activities. Trading revenue in the first quarter was $1.5 billion higher (24 percent) than in the first quarter of 2014.
“Trading performance was quite good in the first quarter,” said Kurt Wilhelm, Director of the Financial Markets Group. “We expected strong results, due to the well-established seasonal effect in trading activity. But, results were even stronger due to dislocations in currency markets at the beginning of the year, which created uncertainty and spurred client demand for risk management products.” Mr. Wilhelm noted that trading revenue in the first quarter was the fifth highest on record, and that in 11 of the past 15 years, trading revenue was highest in the first quarter of the year.
“It’s also noteworthy that trading revenue has now increased on a year-over-year basis for three quarters in a row,” said Mr. Wilhelm. “That follows a string of four consecutive quarters where trading revenue had declined on a year-over-year basis, leading to concerns that trading revenue was in a secular decline.” He noted that, while the recent trading results are positive, the long-term outlook for trading revenue is still uncertain.
Credit exposures from derivatives increased in the first quarter. Net current credit exposure (NCCE), the primary metric the OCC uses to measure credit risk in derivatives activities, rose $147 billion, or 41 percent, to $503 billion. “Credit exposure did go up in the first quarter,” said Mr. Wilhelm, “but the increase we’re reporting is unusually large because, for the first time, the measure includes exposure to central counterparties, or CCPs.” Mr. Wilhelm noted that, using another measure of credit exposure, not influenced by the new reporting of CCP exposures, NCCE rose $30 billion (7 percent).
The report shows that the notional amount of derivatives held by insured U.S. commercial banks declined $17 trillion, or 8 percent, from the fourth quarter to $203 trillion. “Trade compression really picked up in the first quarter, just as it did in the first quarter of 2014,” said Mr. Wilhelm. “There is still a lot of client activity in the derivatives market, but not enough to offset aggressive compression initiatives.” Interest rate notionals fell $16 trillion (9 percent), explaining the entire decline in notionals. On a product basis, the decline in notionals resulted from a decrease in swaps contracts of $17 trillion (13 percent). Trade compression involves aggregating a large number of trades with similar factors, such as risk or cash flow, into fewer trades, thereby reducing capital requirements and operational risk.
The OCC also reported:
A copy of the OCC’s Quarterly Report on Bank Trading and Derivatives Activities: First Quarter 2015 is available on the OCC’s Website.
William Grassano (202) 649-6870