Every quarter the Office of the Currency Comptroller releases its report on
Bank Derivative Activities, and every quarter we find that the Too Big To Fail
get Too Bigger To Fail. To wit: in Q4 2011, of the total $230.8 trillion
in US outstanding derivatives, the Top 5 banks (JPM, BofA, Morgan Stanley,
Goldman and HSBC) accounted for 95.7% of all Derivatives. In some
respects this is good news: in Q2, the Top 5 banks held 95.9% of the $250
trillion in derivatives. Unfortunately it is also bad news, because $220
trillion is more than enough for the world to collapse in a daisy chained
failure of bilateral netting (which not even all the central banks in the world
can offset). What is the worst news, is that the just released report indicates
that in addition to everything else, we have now hit peak delusion, as banks now
report to the OCC that a record high 92.2% of gross credit exposure is
"bilaterally netted." While we won't spend much time on this issue now,
it is safe to say that bilateral netting is the biggest lie in modern finance
(read How
US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends
With A Bang, Not A Whimper for an explanation of this fraud which was
exposed completely in the AIG collapse). And just to put this in global
perspective, according to the BIS in the first half of 2011, global derivative
gross exposure increased by $107 trillion to a record $707 trillion. It will be
quite interesting to get the full year report to see if this acceleration in
gross exposure has increased. Because if it has, we will now know that in 2011
European banks were forced up to load up on several hundred trillion in mostly
interest rate swap exposure. Which can only mean one thing: when and if central
banks lose control of government bond curves, an rates start moving wider again,
the global margin call will be unprecedented. Until then we can just delude
ourselves that central planners have everything under control, have everything
under control, have everything under control.
Top 5 bank derivative exposure:
Exposure by bank:
And the delusion that everyone is somehow hedged. To the tune of $230 trillion!
Source: OCC
Top 5 bank derivative exposure:
Exposure by bank:
And the delusion that everyone is somehow hedged. To the tune of $230 trillion!
Source: OCC
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