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Posted on 10/27/2015 3:36:01 PM PDT by Lorianne
Just when you thought Wall Street’s heist of the U.S. financial system couldn’t get any crazier, along comes a regulator’s report on FDIC-insured banks exposure to derivatives.
According to the Office of the Comptroller of the Currency (OCC), one of the regulators of national banks, as of June 30 of this year, Goldman Sachs Bank USA had $78 billion in deposits, and – wait for it – $45.7 trillion in notional amount of derivatives. (Notional means face amount of derivatives.)
According to the OCC report, Goldman Sachs Bank USA’s notional derivatives are an eye-popping 563 percent of its risk-based capital. You and every other little guy in America is backstopping this bank because it’s, amazingly, FDIC insured.
(Excerpt) Read more at wallstreetonparade.com ...
The Federal Reserve is a government approved monopoly over the supply of money. Their goal is 1) to protect Wall Street profits and their banks and 2) serve as the foundation of the progressive-left, massive nanny state with printed money, massive debt, and manipulated interest rates
Conservatives ignore this, which is why conservatives lose every major political and social battle of the last 5 decades.
BKMK
IIRC this was all brought out years ago. The $$$ may differ but the basis was the same.
I placed a bet on an upcoming football game.
Wait for it....a $2 billion notional bet. You see the face value of the bet is based on the combined values of the teams. The actual amount at risk is $5.
Scary!
Measuring credit exposure in derivative contracts involves identifying those contracts where a bank would lose value if the counterparty to a contract defaulted today. The total of all contracts with positive value (i.e., derivatives receivables) to the bank is the gross positive fair value (GPFV) and represents an initial measurement of credit exposure. The total of all contracts with negative value (i.e., derivatives payables) to the bank is the gross negative fair value (GNFV) and represents a measurement of the exposure the bank poses to its counterparties.
GPFV (i.e., derivatives receivables) fell by $1.0 trillion (24.6%) in the second quarter to $3.1 trillion, driven by sharp declines in receivables from interest rate and foreign exchange contracts, which declined by $0.8 trillion and $0.2 trillion respectively. Because interest rate contracts make up the lion’s share (77.7%) of total notional derivatives contracts, changes in interest rates drive credit exposure in derivatives portfolios. Rises in interest rates tend to reduce exposure. As noted further below in the discussion of derivatives notionals, the maturity profile of interest rate derivatives is becoming longer, making credit exposure more sensitive to changes in longer-term rates. Interest rates moved higher in the second quarter, as market participants began to fear that stronger economic growth would lead to monetary tightening by the Federal Reserve Board. Yields on 10-year interest rate swaps increased 44 basis points to 2.46%. Because banks hedge the market risk of their derivatives portfolios, the change in GPFV was matched by a similar decrease in GNFVs (i.e., derivatives payables). Derivatives payables also fell $998.2 billion (24.9%) to $3.0 trillion, driven by declines in payables on interest rate and FX contracts.
I wonder if Tyler was going to mention that risks declined in the second quarter? Or that banks had a net $100 billion profit on their outstanding derivatives contracts?
According to the OCC report, Goldman Sachs Bank USA’s notional derivatives are an eye-popping 563 percent of its risk-based capital.
Uh, that does not compute.
563% is 5.63 times whatever is being measured. So, if $45.7 TRILLION = 5.63 x its "risk-based capital." OK, taking out the calculator...$45.7 Trillion/5.63 = Risk-based capital of $8.117 TRILLION. Really? GS, has over $8 TRILLION of risk-based capital - half the value of the entire annual economic output? I call BS - somebody has to learn better math skills.
Page 3 of the above report. Risk based capital, $24.2 billion.
Total credit exposure to all contracts, $136.2 billion.
$136.2 billion doesn't sell the panic as well as $45.7 trillion, does it? LOL!
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Insured bank deposits used for derivatives?
How is that not privatizing profits and
socializing the losses?
Corruption right in our faces.
It’s like praising God when times
are good and blaming Satan when they’re not.
Only with money. I’ll shut up now.
This madness of being upset at “exposure” to derivative based on the total of their notional value is just that, madness. It is based on misunderstanding both the notional value of derivatives and the nature of derivatives.
The notional value of a derivative is the value of the underlying assets (whether actual as in the case of puts, calls and futures contracts, or themselves notional as the case of an interest rate swap) on which is based.
For example an interest rate swap with a notional value of $17 billion would be an agreement between two parties, A and B for A to make monthly interest payments at an annual rate of 0.83815% to B, while B makes monthly payments to A at whatever the current USD 1 year LIBOR rate is that month. No one has the $17 billion, no one can lose the $17 billion. A makes money if the LIBOR rate rises, B makes money if the LIBOR rate falls, and if it stays steady (I picked today’s LIBOR rater to be the rate aat which A pays B) it’s a wash.
The notional value of a put or a call is likewise not money anyone can lose, but puts and calls are quite useful as hedges, and hedging is something I quite hope banks are doing with their investments.
Adding up the notional values of derivatives and being upset at the total is a bit like adding up the maximum possible payout for all the insurance policies issued in the U.S. or the developed world, and being upset at the total — but even less sensible. In the latter case the maximum possible payout on a policy is actually an amount someone might have to pay, for *mos*t derivatives the notional value does not represent an amount anyone might ever, conceivably, have to pay.
Which bank socialized derivative losses?
So I gather you do think banks that have invested in tangible assets should be able to protect their depositors and shareholders by using derivatives as hedges against downside risk.
I missed putting “not” after do in my last post. Though I actually hope you take the attitude my mistaken post attributed to you, and actually think use of derivative for hedging investments in more tangible assests is an appropriate activity for commercial banks.
Derivatives can be very high risk. You can lose more than your put in, just as selling short can cost you a whole lot more than your initial investment.
Derivatives can make such a loss as to consume the entire account. And guess who insures the account? The FDIC. In other words the taxpayer. And that socializes the loss. I would be happy to be shown where this is incorrect.
It depends.
You can lose more than your put in, just as selling short can cost you a whole lot more than your initial investment.
That can be a possibility.
Derivatives can make such a loss as to consume the entire account.
You're not trying to compare someone trading a call, put or futures contract with an entire firm, like Goldman, are you?
And that socializes the loss.
So you still don't have an actual example of a derivatives loss being socialized? Let me know if you find one. TIA.
Don’t get distracted from the real problem: we owe $19,000,000,000,000 ... more than what the entire country earns in a year. To pay that off, we’d have to cut federal spending in half, then route 30% of that to paying principal for the next 30 years.
Correction:
The Federal Reserve is an ILLEGAL government monopoly where fractional debt is wrongly called ‘legal tender’.
The US Mint to this day still mints TRUE money; in it’s silver/gold backed coinage.
The Constitution has been abused, flouted, ignored and usurped for over 100 yrs. (C) lose because they too fail to correct the past.
What is fractional debt?
The issue with derivatives is balanced risk where the portfolio is even
Where the demons rise up is when some hotshot gambles on interest rates heavy on one side or the other. A bad guess will knock your capital base for a loop
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