Banks reported $6.4 billion in trading revenue in the third quarter, down 3.6% from the previous quarter, on falling interest rate and foreign exchange revenue, according to a report Tuesday by the Office of the Comptroller of the Currency.
Trading was down 0.4% from a year earlier, driven by a 14.5% year-over-year decrease in combined revenue from interest rate-related and foreign exchange trading, which totaled $4.5 billion in the third quarter.
"Since dealers often use interest rate contracts to hedge exposures in FX derivatives, it is useful to view these categories collectively," the OCC report said.
Both equity- and credit-related trading revenue rose in the third quarter. Equity trading revenue of $1.2 billion was up 61.2% from a year earlier, while credit revenue of $470 million nearly tripled from a year earlier.
In the third quarter, four large commercial banks represented 90% of all banks' notional derivative amounts and 86% of the industry's net current credit exposure, which is the primary metric the OCC uses to evaluate credit risk in bank derivative activities.
"A small group of large financial institutions continues to dominate derivative activity in the U.S. commercial banking system," the report said.
Meanwhile, 39.6% of banks’ derivative holdings were centrally cleared, which is just over the 39% a year earlier. The OCC also reported that notional derivatives rose 6% to $188.3 trillion from a year earlier.