Commercial Banks Set Records for Derivatives

Driven by record debt issuance by corporate America, U.S. commercial banks saw an “eye-popping” rise in trading revenue and derivatives volume in the first quarter of 2001, the Office of the Comptroller of the Currency said Monday.

Bank trading revenue rose 45% to a record $3.98 billion, up from $2.74 billion in the fourth quarter of 2000, while the notional amount of derivatives in banks’ portfolios, a good indication of market activity, jumped more than 8% to a record $43.9 trillion, up from $40.5 trillion.

“These are rather eye-popping numbers,” said Michael Brosnan, OCC deputy comptroller for risk evaluation.

Derivatives are financial instruments whose values are derived from an underlying security or financial instrument. Types of derivatives include stock options, futures and interest rate swaps.

The OCC said the total credit exposure of U.S. commercial banks from derivatives, one measure of the risks of the business, rose $63 billion to $496 billion in the first quarter, also a record.

Despite the increase, actual losses from derivatives remained insignificant, the OCC said.