Trading revenue at banks falls in 2Q by more than 16%; credit exposure declines too

Trading revenue declined by more than 16% in the second quarter by commercial banks and federal savings associations, the regulator of national banks said Monday in a release, representing a drop of $1.3 billion from the first quarter.

The Office of the Comptroller of the Currency (OCC) said trading revenue was $6.9 billion at the financial institutions in the second quarter, compared with $8.2 billion as of March 31.

However, compared with the second quarter of 2017, the agency said, trading revenue was actually higher by 3.5% (when the financial institutions reported $6.6 billion in income).

The OCC report – based on mid-year call reports – also shows:

  • Credit exposure from derivatives at reporting institutions decreased in the second quarter of 2018 compared with the first quarter, with net current credit exposure (NCCE) falling $0.4 billion, or 0.1%, to $361.7 billion. (NCCE is the primary metric the OCC said it uses to evaluate credit risk in bank derivative activities.)
  • Trading risk, as measured by daily value-at-risk (VaR), decreased in the second quarter of 2018. Total VaR2 across the top five dealer banking companies decreased $42.0 million, or 13.6%, to $267 million.
  • Derivative contracts remained concentrated in interest rate products, which represented 76% of total derivative notional amounts.
  • The percentage of centrally cleared derivatives transactions increased to 41% in the second quarter 2018.

OCC said in its report that 1,358 insured U.S. commercial banks and savings associations reported trading and derivatives activities at the end of the second quarter.

“A small group of large financial institutions continues to dominate trading and derivatives activity in the U.S. commercial banking system,” the agency said. It added that during the second quarter of 2018, four large commercial banks represented 89.9%  of the total banking industry notional amounts and 84.6% of industry NCCE.

OCC Reports Second Quarter 2018 Bank Trading Revenue