by Pam Martens and Russ Martens at Wall Street on Parade
When something happens for the first time in history at federally-insured banks, Congress and federal regulators need to pull their heads out of the sand and pay attention. We’re talking about the fact that in the second quarter of this year, trading revenues at federally-insured commercial banks eclipsed the trading revenues at bank holding companies – which typically include subsidiaries where traders actually have licenses to trade.
This latest data on what is happening inside the nation’s largest federally-insured banks comes from the Office of the Comptroller of the Currency (OCC), see pages 2 and 3 here. The federally-insured banks generated a total of $10.3 billion in trading revenue in the second quarter versus $10.2 billion for the bank holding companies, or 101 percent of the bank holding company revenues. That’s never happened before according to the data provided by the OCC.
The report provides the following historical perspective:
“Before the 2008 financial crisis, trading revenue at banks typically ranged from 60 percent to 80 percent of consolidated BHC [Bank Holding Company] trading revenue. Since the 2008 financial crisis and the adoption of bank charters by the former investment banks [Goldman Sachs and Morgan Stanley], the percentage of bank trading revenue to consolidated BHC trading revenue has decreased and is typically between 30 percent and 50 percent. This decline reflects the significant amount of trading activity by the former investment banks that, while included in BHC results, remains outside insured commercial banks. More generally, insured U.S. commercial banks and savings associations have more limited legal authorities than their holding companies, particularly in the trading of commodity and equity products.”
The OCC attempts to assign this unprecedented event to a decrease in trading in equity derivatives at the bank holding company. But Figures 15a and 15b in the Appendix of this report actually show equity derivative trading moving to the federally-insured bank in the second quarter. Figures 15a and 15b also show that 100 percent of trading in credit derivatives (the majority of which are credit default swaps) moved to the federally-insured bank in the first and second quarters of this year and out of the bank holding company. Credit default swaps are the most dangerous of the derivatives traded on Wall Street.
Trading does not belong in a federally-insured bank that is backstopped by…
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