Wednesday, May 16, 2012

I've got a notion to...

The newest Scary Movie has a plot something like;

Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.
That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives....
Notional, as in made-up by counting the same reference number 10 or 20 times over.  That JP Morgan Chase's balance sheet shows only about $2 trillion in assets ought to be a clue that there's something fishy about 'notional value'.

Which there is, as this piece makes clear, Take note of;

Summary of the U.S. Derivatives Market
  • U.S. commercial banks currently hold a notional value of $244 trillion in derivatives.
  • Trading exposure, which is measured by VaR (Value at Risk), is $677 million.
  • Net Current Credit Exposure of commercial banks to derivatives is $353 billion, due to bilateral netting.
 A little grade school math should be all that is needed to show that the actual exposures of U.S. banks is but a tiny fraction of the notional amount.  But, $353 billion isn't very scary, and $677 million even less so.

No comments:

Post a Comment