Trading revenue drops off in 2nd quarter at banks, thrifts

Trading revenue fell 4.9% — or $348 million – during the second quarter at commercial banks and savings associations from the previous quarter, and 4.5% from the second quarter of 2016 (to $6.7 billion from $7 billion), the Office of the Comptroller of the Currency (OCC) reported Wednesday.

Combined interest rate and foreign exchange (FX) revenue led the quarterly decrease, with revenue decreasing $419 million to $5.2 billion, the OCC said. “Since dealers often use interest rate contracts to hedge exposures in FX derivatives, it is useful to view these categories collectively. The decrease in these categories was partially offset by an increase in equity trading revenue,” the agency said in a release.

According to the agency, 1,418 insured U.S. commercial banks and savings associations reported derivative activities at the end of the second quarter of 2017 (up from 1,414 in the previous quarter).

A small group of large financial institutions, OCC said, continues to dominate derivative activity in the U.S. commercial banking system. During the second quarter of 2017, four large commercial banks represented 89.6 percent of the total banking industry notional amounts and 86.0 percent of industry net current credit exposure (NCCE).

The OCC also reported:

  • Trading risk, as measured by value-at-risk (VaR), decreased in the second quarter 2017. Total average VaR across the top five dealer banking companies decreased $4 million from the previous quarter, or 1.4 percent, to $273 million.
  • The percentage of centrally cleared derivatives transactions increased to 40 percent in the second quarter 2017, up from 39 percent in the second quarter 2016.

OCC Quarterly Report on Bank Trading and Derivatives Activities