by Euro347
In March 2023 when all the medium sized banks started imploding one by one the primary topic of discussion was terrible risk management and US treasuries losses. Now there is a new threat that is maybe 1000x worse. Derivatives and swaps. At the Big Banks. I found it interesting that Fitch came out with their warning today and JP Morgan was the primary suspect.
These are the Top 5 US Banks with hidden derivatives on their books.
- JPMORGAN CHASE BANK NA – $54T
- GOLDMAN SACHS BANK USA – $50T
- CITIBANK NATIONAL ASSN – $45T
- BANK OF AMERICA NA – $21T
- WELLS FARGO BANK NA – $12T
Page 18 of the OCC’s report:www.occ.treas.gov/publications-and-resources/publications/quarterly-report-on-bank-trading-and-derivatives-activities/files/pub-derivatives-quarterly-qtr3-2022.pdf
The OCC’s definition of a Derivative: A financial contract in which the value is derived from the performance of underlying market factors, such as interest rates, currency exchange rates, and commodity,credit, and equity prices. Derivative transactions include a wide assortment of financial contracts,such as structured debt obligations and deposits, swaps, futures, options, caps, floors, collars,forwards, and various combinations thereof.
Now late last year the Bank of international settlements did warn us this was something nobody was paying attention to.
www.reuters.com/markets/currencies/global-markets-bis-urgent-2022-12-05/
Currently one of the biggest concerns is Japan. Everyone expects the Bank of Japan to keep buying bonds and keeping its currency in check. There is a massive risk if they lose control and all these swaps begin to unwind. The treasury losses at the FED will look like peanuts. The economic data out of China has been shockingly bad, this is another major risk as their real estate sector is actively imploding and the US is seeing a rapid decline in Commercial Real Estate values.
What I’m looking for is to hear from the other 2 rating agencies SP and Moody’s. They have been very quiet. There is also the BRICS meeting next week, a lot of discussion about De-dollarization, another risk to the US.
I don’t think anyone on wallstreet will sell Burry Credit Default Swaps anymore so I’m guessing that’s why he went with puts.
Buffett and Munger talked about the dangers of derivatives at one of their shareholder meets. Can be found on YouTube.