Skip to comments.TBTF Get TBTFer: Top 5 Banks Hold 95.7%, Or $221 Trillion, Of Outstanding Derivatives
Posted on 03/26/2012 1:22:10 PM PDT by SatinDoll
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...
(Excerpt) Read more at zerohedge.com ...
When everything tanks we're still going down like the Titanic.
If only some things tank do you think we will stay afloat like the USS Ronald Reagan?
Few people understand the difference between the notional value of a derivative and the amount at risk.
Let’s say I bet you a dollar that the Dow Jones will go up tomorrow. That’s a derivative with a notional value of billions of dollars. However, the most I can lose if the Dow goes down is still only one dollar.
I have been informed (by someone in the business) that five of the U.S. biggest banks hold $250 TRILLION DOLLARS in Europe’s debt, mainly bonds. The total of Europe’s bond debt is $300 TRILLION DOLLARS.
If you’re trying to convince me there is no risk to this nation, you’re going to have to do better than talking about “notional value”.
So what does the scary-sounding $0.25Q mean?
Well, let’s look at more realistic example.
When Lehman failed, they failed for $400 billion. There were outstanding CDOs for 3 times that amount, or roughly $1.2 trillion.
However, when the 400 or so biggest holders got together to settle up among themselves, only about $14 billion in actual cash changed hands. Everything else was hedged.
And the debt of Europe is certainly not $250 trillion dollars or anything like it. The total debt of the US is only $15 trillion.
You also have to look at the fact that the bankruptcy of Lehman was completely unexpected. You can’t say that with Europe, everybody knows what’s been going on for the past 2 years. Most US banks probably have very little exposure to the riskiest sovereigns and a totally balanced book.
Google “notional value” FRiends. And take your meds.
The positions are hedge. But I guess that reality would be lost on something called “zero-hedge.”