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News Release 2010-33 | March 19, 2010

OCC Reports Declining Derivatives Credit Exposures

WASHINGTON — The credit exposure from derivatives activities declined 18 percent in the fourth quarter of 2009, and by 50 percent during the year, the Office of the Comptroller of the Currency reported today in the OCC's Quarterly Report on Bank Trading and Derivatives Activities.

The OCC reported that net current credit exposure (NCCE), the primary metric the OCC uses to measure credit risk in derivatives activities, decreased $86 billion, or 18 percent, to $398 billion. At the end of 2008, NCCE peaked at $800 billion. “The continued decline in NCCE is a very welcome development,” said Kathryn Dick, Deputy Comptroller for Credit and Market Risk.

NCCE fell in each quarter of 2009, as rises in interest rates and sharp declines in credit spreads helped to reduce receivables from derivatives, Ms. Dick noted. “Despite the substantial reduction in credit exposures from derivatives, NCCE remains historically quite high, and so we continue to closely evaluate, as part of our examination priorities, banks’ measurement and management of counterparty credit exposures,” Ms. Dick said.

U.S. commercial banks reported trading revenues of $1.9 billion in the fourth quarter of 2009, down sharply from $5.7 billion in the third quarter. Trading revenues for the full year 2009 were $22.6 billion, a sharp rebound from 2008’s first-ever annual trading loss of $836 million.

“We normally see trading revenues weaken in the final quarter of the year,” said Ms. Dick. “It has happened 8 times in the past 10 years. Clients start to close their books as year-end approaches, so client demand falls, and the dealers become more risk averse in order to preserve their profits for the year.”

The report shows that the notional amount of derivatives held by insured U.S. commercial banks increased by $8.5 trillion (or 4.2 percent) in the fourth quarter to $212.8 trillion. Interest rate contracts increased $7 trillion to $179.6 trillion, while credit derivatives increased 8 percent to $14 trillion.

The report also noted that:

  • Banks hold collateral to cover 67% of their NCCE. The quality of the collateral is very high, as 81% is cash (US dollar and non-dollar).
  • 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 decreased by 35 in the quarter to 1,030.

A copy of the OCC’s Quanr-occ-2010-33a.pdfrterly Report on Bank Trading and Derivatives Activities: Fourth Quarter 2009 is available on the OCC’s Website at:

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