Insured commercial banks said their second-quarter revenue from trading cash and derivative instruments more than doubled from the first quarter, to $1.6 billion, the Office of the Comptroller of the Currency said Friday.
"The trading environment remains challenging, and while revenues improved in the second quarter of 2008, overall performance remains weak, due to the continued writedown of credit exposures in the trading portfolios," said Kathryn Dick, the deputy comptroller for credit and market risk for the OCC.
"Our large national trading banks report solid client demand for risk management products in the two biggest derivatives portfolios in the commercial banking system — interest rates and foreign exchange — but liquidity issues in markets for traded credit continue to depress client business in this area," Ms. Dick said.
The banks reported $1.4 billion of second-quarter revenue from interest rate contracts, $2.1 billion from foreign exchange contracts, and $800 million from commodities and equity, the OCC said. Trading credit instruments generated a loss of $2.7 billion.
The notional amount of derivatives held by insured commercial banks increased by $1.8 trillion in the second quarter, to $182 trillion, the agency said. Interest rate contracts increased $3.1 trillion, to $145 trillion.
Credit derivatives decreased 6%, to $15.5 trillion.
The OCC reported net current credit exposure decreased $59 billion during the quarter, to $406 billion. Current credit exposure is what the agency uses to measure credit risk in derivatives activities.
"Although the rise in interest rates caused a decline in the reported current credit exposures this quarter, counterparty risk remains one of our top areas of focus, and we continue to work closely with other supervisors and the industry to seek stronger risk management in this area," Ms. Dick said.