According to the Federal Deposit Insurance Corporation (FDIC), there were 4,706 federally-insured banks and savings associations in the U.S. as of December 31, 2022. Of those, according to the quarterly report released last Friday from the Office of the Comptroller of the Currency (OCC), a little less than one-quarter found a reason to engage in derivative trading activities.
As of December 31, 2022, just 1,139 FDIC-insured commercial banks and savings associations reported trading of derivatives in the fourth quarter of 2022, according to the OCC. Ostensibly, instead of running a derivatives casino, the other three-quarters of taxpayer-subsidized banks were doing what taxpayers want federally-insured banks to do: make business loans; provide affordable mortgage loans to homebuyers; provide checking accounts devoid of hacking, identity theft and predatory overdraft fees; and not blow up the bank by getting in bed with derivatives, crypto or dodgy Wall Street IPOs.
As it does each quarter, the OCC report rang this alarm bell:
“A small group of large financial institutions continues to dominate trading and derivatives activity in the U.S. commercial banking system. During the fourth quarter of 2022, four large commercial banks represented 88.2 percent of the total banking industry notional amounts [of derivatives] and 62.5 percent of industry net current credit exposure (NCCE).”
Those four banks are Goldman Sachs Bank USA with $52.6 trillion in notional (face amount) derivatives exposure; JPMorgan Chase Bank N.A. with $49.5 trillion in notional derivatives exposure; Citigroup’s Citibank with $47 trillion in notional derivatives exposure; and Bank of America with $19.4 trillion in notional derivatives exposure.
One area that particularly stands out in the current OCC report is data showing JPMorgan Chase Bank N.A. held $200.12 billion in precious metals derivative contracts at its federally-insured bank as of December 31, 2022, versus a total of $378.12 billion for all banks in the U.S. holding derivatives. That’s one bank holding 53 percent of all precious metals contracts in the U.S. banking system. (See Table 21 on page 26 of the OCC report.)
And there’s no guarantee that the OCC report captures the full picture of this highly concentrated derivatives market. (See our report: Wall Street Banks Are Dangerously Evading U.S. Derivatives Rules by Making Trades at Foreign Subsidiaries.)
It is hard to understate the regulatory failure of allowing JPMorgan Chase to continue to have this outsized presence in the precious metals derivatives market.
