Five Wall Street Banks Hold $223 Trillion in Derivatives -- 83 Percent of All Derivatives at 4,600 Banks

[Gunnar Larson]

https://wallstreetonparade.com/2024/02/five-wall-street-banks-hold-223-trillion-in-derivatives-83-percent-of-all-derivatives-at-4600-banks/


By Pam Martens and Russ Martens: February 13, 2024 ~

According to the Financial Crisis Inquiry Commission (FCIC), derivatives
played a major role in the financial crash of 2007 to 2010 in the United
States, the worst financial crisis in the U.S. since the Great Depression
of the 1930s. The FCIC wrote in its final report: “…the existence of
millions of derivatives contracts of all types between systemically
important financial institutions — unseen and unknown in this unregulated
market — added to uncertainty and escalated panic….”

Americans believed that the Dodd-Frank financial reform legislation of 2010
would fulfill its promise of reining in concentrated risks like
derivatives. It did not. (See our report from 2015: President Has His Facts
Seriously Wrong on Financial Reform.)

According to data from the Office of the Comptroller of the Currency (OCC),
the regulator of national banks, as of March 31, 2009, five bank holding
companies held $277.57 trillion in derivatives (notional/face amount). At
that time, according to the FDIC, there were 8,249 federally-insured
commercial banks and savings associations in the U.S. but just five bank
holding companies held 95 percent of all derivatives at all U.S. banks.
Those financial institutions were: JPMorgan Chase, Bank of America, Goldman
Sachs Group, Morgan Stanley and Citigroup.

Five Banks with Largest Derivative Exposure, March 31, 2009

Now flash forward to the most recent report from the OCC for the quarter
ending September 30, 2023. According to that report, those same five bank
holding companies hold $223 trillion of the $268 trillion in derivatives
held by all banks in the U.S., or 83 percent.



Equally alarming, those same five bank holding companies control 96 percent
of the most dangerous form of derivatives – credit derivatives. The five
bank holding companies account for $5.8 trillion in credit derivatives
versus $6 trillion in credit derivatives for all banks in the U.S.

The Federal Reserve secretly funneled $16 trillion in cumulative loans at
below-market interest rates to prop up the Wall Street casino banks from
December 2007 through June of 2010, in no small part because of the
systemic contagion that spread from their concentrated positions in
derivatives.

To prevent a replay of the Wall Street mega banks blowing themselves up as
they did in 2008, federal banking regulators in July of last year released
a proposal that would impose higher capital rules on just 37 banks (out of
the 4,600 banks in the U.S.). The proposed new capital rules would impact
just those banks significantly engaged in derivatives and other high-risk
trading strategies.

The backlash has been fierce from Wall Street’s mega banks, with the banks
even running television ads painting a bogus and distorted picture of what
the capital increases would do.

Another major area of concern is who is on the other side of these
derivative trades with the mega banks – their so-called “counterparty.”

According to federal researchers, there are both mega bank counterparties
as well as “non-bank financial counterparties” – which could be insurance
companies, brokerage firms, asset managers or hedge funds. There are also
“non-financial corporate counterparties” – which could be just about any
domestic or foreign corporation. To put it another way, the American people
have no idea if they own common stock in a publicly-traded company that
could blow up any day from reckless dealings in derivatives with global
banks.

Wall Street has a history of blowing up things with derivatives. Merrill
Lynch blew up Orange County, California with derivatives. Some of the
biggest trading houses on Wall Street blew up the giant insurer, AIG, with
derivatives in 2008, forcing the U.S. government to take over AIG with a
massive bailout.

According to documents released by the Financial Crisis Inquiry Commission,
at the time of Lehman Brothers’ bankruptcy on September 15, 2008, it had
more than 900,000 derivative contracts outstanding and had used the largest
banks on Wall Street as its counterparties to many of these trades. The
FCIC data shows that Lehman had more than 53,000 derivative contracts with
JPMorgan Chase; more than 40,000 with Morgan Stanley; over 24,000 with
Citigroup’s Citibank; over 23,000 with Bank of America; and almost 19,000
with Goldman Sachs.

We are asking our readers to do their part to stop Wall Street mega banks
and their legions of lobbyists from gutting the proposed capital rules.
Please contact your U.S. Senators today via the U.S. Capitol switchboard by
dialing (202) 224-3121. Tell your Senators to demand that banking
regulators hold firm on the stronger capital rules for the casino banks on
Wall Street.
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