More on Derivatives

Under Dodd-Frank, the Wall Street banks were required to move their derivatives to exchanges or central clearinghouses. That has not happened as shown by the following table from the recent OCC report.

As you can see, the four banks that account for the vast majority of all derivatives in the U.S. had moved a mere sliver of their derivatives to exchanges. Out of JPMorgan Chase’s $52.9 trillion in derivatives, it had moved a mere 4.4 percent to exchanges (Percent Exch Traded Contracts), leaving 95.6 percent (Percent OTC Contracts) in Over-the-Counter contracts — private contracts between the bank and counterparties whose terms are often off limits to regulators.

Also, Citigroup, at the bank holding company level, has now eclipsed JPMorgan Chase in total derivatives, holding 35 percent more than it did at the time it blew itself up in 2008.

The banks were also required under Dodd-Frank to move their derivatives out of the FDIC-insured banks they owned and onto the books of uninsured affiliates to prevent another forced bailout by taxpayers. That didn’t happen either and Citigroup was able to slip language into the December 2014 spending bill to completely repeal that provision of Dodd-Frank.