3Q trading revenue falls by 3.6% at banks, savings institutions for second straight period

Trading revenue of $6.4 billion in the third quarter for banks and savings institutions was down from the previous quarter by $241 million – 3.6% – and lower than that posted at the end of the 2016 third quarter, the federal regulator of national banks said Tuesday.

The Office of the Comptroller of the Currency (OCC) said the 2017 revenue was down 0.4% from the 2016 amount at the end of the third quarter. It is also the second straight quarter for declines in trading revenue.

The agency blamed the decline in the quarterly revenue on “combined interest rate and foreign exchange (FX) revenue,” which fell $743 million to $4.5 billion. “Since dealers often use interest rate contracts to hedge exposures in FX derivatives, it is useful to view these categories collectively,” the OCC said, noting the decrease in the categories was partially offset by an increase in the remaining trading revenue classes.

The regulator also reported in its Quarterly Report on Bank Trading and Derivatives Activities that:

  • Trading risk, as measured by value-at-risk (VaR), decreased in the third quarter 2017. Total average VaR across the top five dealer banking companies decreased $17 million from the previous quarter, or 6.2%, to $256 million.
  • The percentage of centrally cleared derivatives transactions increased to 39.6% in the third quarter 2017, up from 39% in the third quarter 2016.
  • While the largest four banks held 90% of the total banking industry notional amount of derivatives, 1,391 U.S. commercial banks and savings associations held derivatives at the end of the third quarter 2017.

OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Third Quarter 2017