The credit risk in U.S. banks' derivatives trading fell in the third quarter as financial markets continued to stabilize, a top regulator said Friday.
The Office of the Comptroller of the Currency said that net current credit exposure, which the agency uses to measure the risk of derivatives trading, fell 13%, to $484 billion, during the quarter. This was down from $800 billion at the height of the financial crisis last year.
"As financial markets have stabilized, credit spreads have narrowed considerably, and that has helped to reduce counterparty credit exposures," said Kathryn Dick, deputy comptroller for credit and market risk.
Banks have taken advantage of the improving conditions by boosting their trading activities. The agency said U.S. commercial banks reported $5.7 billion in trading revenue during the third quarter, up from $5.2 billion in the second quarter. The notional amount of derivatives held by U.S. commercial banks was $204.3 trillion, an increase of $804 billion from the second quarter. The largest five banks hold 97% of the total notional amount.
Overall, the OCC said credit-default swaps continue to be the most used product in the credit derivatives market, representing 98% of total credit derivatives. The agency also said interest rate contracts increased to $173 trillion during the quarter while credit derivatives fell 3%, to $13 trillion.