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News Release 2007-120 | October 26, 2007

OCC Reports Quarterly Bank Trading Revenues of $6.2 Billion

WASHINGTON — Insured U.S. commercial banks generated $6.2 billion in trading revenues during the second quarter of 2007, up 30 percent from a year earlier, the Office of the Comptroller of the Currency reported today in the OCC's Quarterly Report on Bank Derivatives Activities. Revenues for the quarter were the second highest ever recorded, trailing only this year’s first quarter. The strong second quarter trading numbers largely preceded the recent turmoil in the capital markets.

The strong second quarter trading revenue was attributable primarily to interest rate products, which set a record at $3 billion, 79 percent higher than the year-earlier period and 24 percent higher than in the first quarter.

"The interest rate derivatives market is a deep and liquid market and these contracts represent the largest portion of the total notional amount of derivatives in the banking system," said Deputy Comptroller for Credit and Market Risk, Kathryn E. Dick.

Revenues from equity products were $1 billion – down 41% from the first quarter but up 894 percent from the depressed second quarter of 2006. Revenues from credit products, including credit derivatives, were $853 million in the second quarter, off 3 percent from the first quarter.

The OCC also reported that the notional amount of derivatives held by insured U.S. commercial banks increased $7.7 trillion, or 5 percent, in the quarter, to a record level of $153 trillion. The second quarter derivatives total is 28 percent higher than in the same period in 2006.

Credit derivatives, the fastest growing product in the derivatives market, increased 16 percent during the quarter to a notional level of $11.8 trillion, 79 percent higher than a year ago.

The OCC reported that the net current credit exposure, the primary metric the OCC uses to measure credit risk in derivatives activities, rose $20 billion during the quarter or 11 percent, to $199 billion.

The report also noted that:

  • Foreign exchange trading revenues were $1.3 billion in the second quarter, 53 percent lower than the year-ago quarter and 31 percent lower than the first quarter. Commodity/other revenues totaled $25 million, off 91 percent from the same quarter in 2006 and down 86 percent from the first quarter. Derivatives contracts are concentrated in a small number of institutions. The largest five banks hold 97 percent of the total notional amount of derivatives, while the largest 25 banks hold nearly 100 percent.
  • Credit default swaps are the dominant product in the credit derivatives market, representing 98 percent of total credit derivatives.
  • The number of commercial banks holding derivatives increased by 14 in the second quarter to 968.

A copy of the OCC’s Quarterly Report on Bank Derivatives Activities: Second Quarter 2007 is available on the OCC’s Website.

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