Three Wall Street Mega Banks Hold $157.3 Trillion in Derivatives – That’s $56.7 Trillion More than the Entire World’s GDP Last Year

Gunnar Larson g at
Mon Dec 18 07:20:01 PST 2023

Three Wall Street Mega Banks Hold $157.3 Trillion in Derivatives – That’s
$56.7 Trillion More than the Entire World’s GDP Last Year

By Pam Martens and Russ Martens: December 18, 2023 ~

World GDP Versus U.S. Mega Bank Derivatives

At recent Congressional hearings on federal bank regulators’ newly proposed
rules to force the largest banks in the U.S. to hold more capital against
their riskiest trading positions (so that taxpayers aren’t on the hook for
more bailouts), the banks and their sycophants holding Senate and House
seats made it sound like it’s the American farmers who will be hurt because
the derivatives they use to hedge against crop failures or price swings in
their crops will become more expensive..

We knew this was a completely bogus argument because the latest data from
the U.S. Department of Agriculture indicates that “agriculture, food, and
related industries contributed roughly $1.264 trillion to U.S. gross
domestic product (GDP) in 2021….”

In other words, U.S. farmers need to hedge less than $2 trillion while just
three mega banks on Wall Street were holding $157.3 trillion in derivatives
as of September 30 of this year – which is $56.74 trillion more than the
GDP of the entire world last year. (See chart above.)

If the bulk of these derivatives aren’t being used by farmers and business
owners to hedge against losses, what are they being used for? According to
the Office of the Comptroller of the Currency (OCC), the federal regulator
of national banks, the trillions of dollars in derivatives at the mega
banks on Wall Street are being used for trading – likely for the benefit of
the banks themselves or their billionaire speculator clients, such as hedge
funds and family offices.

According to the OCC, as of September 30, JPMorgan Chase (which lost $6.2
billion from its federally-insured bank in wild derivative trades in 2012)
is still allowed to sit on $54.4 trillion in derivatives. Citigroup’s
Citibank, which blew itself up in 2008 from derivatives and
off-balance-sheet vehicles and received the largest bailout in global
banking history, is sitting on more derivatives today than at the time of
its crash in 2008. OCC data shows Citibank with $35.6 trillion in
derivatives on September 30, 2008 (see Table 1 in the Appendix here) versus
a staggering $51.3 trillion as of September 30, 2023. Goldman Sachs, whose
federally-insured bank has just $538 billion in assets, has $51.6 trillion
in derivatives. (In what alternative universe from hell would Goldman Sachs
be allowed to own a federally-insured bank?)

Then there is the matter of concentrated risk. According to the FDIC, as of
September 30, there were 4,614 federally-insured banks and savings
associations in the U.S. – the vast majority of which found no need to
involve the bank in derivatives at all. But, for some inexplicable reason,
three banks with highly dubious histories have been allowed to establish
insane levels of concentrated risk in derivatives. The $157.3 trillion in
derivatives held by JPMorgan Chase Bank, Citibank and Goldman Sachs Bank
USA represent 77 percent of all derivatives held by all 4,614
federally-insured financial institutions in the U.S. (See chart below.)

Derivatives Held for Trading at Commercial Banks

The chart at the top of this page shows how this derivative problem has
grown since the repeal of the Glass-Steagall Act in 1999. The repeal
removed the ban of casino trading houses on Wall Street merging with
federally-insured banks. Today, every giant federally-insured bank on Wall
Street owns a trading house. In 1996, prior to the repeal of
Glass-Steagall, derivatives at U.S. banks represented just 63 percent of
world GDP. At the end of last year, derivatives at U.S. banks represented
189.92 percent of world GDP.

To prevent a replay of the banks blowing themselves up as they did in 2008
while their federal regulators were napping, federal banking regulators in
July proposed to impose higher capital rules on just 37 banks – those
significantly engaged in derivatives and other high-risk trading strategies.

The backlash has been fierce, with the mega banks even running television
ads painting a bogus and distorted picture of what the capital increases
would do.

Another critical question is who is on the other side of these derivative
trades with the mega banks and may blow up if they took the wrong side of
the trade?

According to federal researchers, there are both mega bank counterparties
as well as “non-bank financial counterparties” – which could be insurance
companies, brokerage firms, asset managers or hedge funds. There are also
“non-financial corporate counterparties” – which could be just about any
domestic or foreign corporation. To put it another way, the American people
have no idea if they own common stock in a publicly-traded company that
could blow up any day from reckless dealings in derivatives with global

This is not some far-fetched fantasy. Wall Street has a history of blowing
up things with derivatives. Merrill Lynch blew up Orange County, California
with derivatives. Some of the biggest trading houses on Wall Street blew up
the giant insurer, AIG, with derivatives in 2008, forcing the U.S.
government to take over AIG with a massive bailout.

According to documents released by the Financial Crisis Inquiry Commission
(FCIC), at the time of Lehman Brothers’ bankruptcy on September 15, 2008,
it had more than 900,000 derivative contracts outstanding and had used the
largest banks on Wall Street as its counterparties to many of these trades.
The FCIC data shows that Lehman had more than 53,000 derivative contracts
with JPMorgan Chase; more than 40,000 with Morgan Stanley; over 24,000 with
Citigroup’s Citibank; over 23,000 with Bank of America; and almost 19,000
with Goldman Sachs.

According to the Financial Crisis Inquiry Commission (FCIC), derivatives
played an outsized role in the spread of financial panic in 2008. The FCIC
wrote in its final report:

“the existence of millions of derivatives contracts of all types between
systemically important financial institutions—unseen and unknown in this
unregulated market—added to uncertainty and escalated panic….”

We are asking our readers to do their part to stop Wall Street mega banks
and their legions of lobbyists from gutting the proposed capital rules.
Please contact your U.S. Senators today via the U.S. Capitol switchboard by
dialing (202) 224-3121. Tell your Senators to demand that banking
regulators hold firm on the stronger capital rules for the casino banks on
Wall Street.
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