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Kind of curious that you would assume otherwise. If the lion's share is
concentrated in the big seven and none of them had problems .. the
chargeoffs should have been tiny. Most of the stuff is interest rate ..
over 80% .. with the balance being FX. The mix used to be different ..
almost the opposite if I remember correctly. They only deal a very small
portion of the trading with the smaller players therefore the chargeoffs are
.. as you would expect tiny. Could they become unhedged. Sure to a degree,
but that is why they have balance sheets.
If you didn't have all this activity ... you have very very little interest
rate trading and huge vol. swings and risk. Which would you prefer.
-----Original Message-----
From: Earl Adamy [mailto:eadamy@xxxxxxxxxx]
Sent: Friday, August 17, 2001 4:14 PM
To: Realtraders
Subject: [RT] Derivatives
Very interesting report from Office of Controller of Currency Bank
Derivatives Report. The entire 23 page report complete with tables can be
found at http://www.occ.treas.gov/ftp/deriv/dq101.pdf. The tables show
tremendous concentration of derivative leverage, holdings, and risk among 7
banks. Needless to say, with the entire global financial system under
stress, there is significant risk that hedged derivative positions will
become unhedged.
One paragraph stands out: "During the first quarter of 2001 banks charged
off $2 million due to credit losses from derivatives, or .0004 percent of
the total credit exposure from derivative contracts. For comparison
purposes, net loan charge-offs relative to total loans for the quarter were
.18 percent." $2 million out of $43.9 trillion!!!
Earl
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