Seeking Alpha’s Matthew Goldstein notes that the OCC is continuing the last decade of regulatory non-action.
The OCC, in its quarterly derivatives report, routinely notes that the Big Four “have the resources needed to be able to operate this business in a safe and sound manner.”
In other words, the biggest banks are best suited to handle all these derivatives contracts because they’ve been doing it for so long.
But it’s this regulatory logic that has helped enshrine the too-big-to-fail doctrine. A handful of financial institutions are deemed more indispensable than others because they are too interconnected to fail. It’s the large concentration of derivative contracts at a troubled bank like Citigroup that made a big bailout necessary.
So it’s particularly disturbing to find that the total dollar value of outstanding derivatives at Citi rose by $2.3 trillion, to $31.9 trillion in the second quarter. By contrast, the notional value of derivatives transactions at JPMorgan Chase — the leader in this category — fell by $1.2 trillion, to $79.9 trillion.
It’s hard to fathom how a bank that has yet to prove it can stand on its own two feet without huge amounts of federal support should be adding to its potential derivatives exposure.