Anyone think Gordon Gekko would be saying this today? On second thought, he probably would…
The Huffington Post reports:
Derivatives is one of the dirty words of the financial crisis. Though these often-risky bets were blamed by many for helping fuel the credit crunch and the downfall of Lehman Brothers and AIG, it seems that Wall Street has yet to learn its lesson.
U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter of 2009, a 225 percent increase from the same period last year, according to the Treasury Department.
More than 1,100 banks now trade in derivatives, a 14 percent increase from last year. Four banks control the market: JPMorgan Chase, Goldman Sachs, Bank of America and Citibank account for 94 percent of the total derivatives reported to be held by U.S. commercial banks, according to national bank regulator the Office of the Comptroller of the Currency.
The credit risk posed by derivatives in the banking system now stands at $555 billion, a 37 percent increase from 2008. “By any standard these [credit] exposures remain very high,” Kathryn E. Dick, the OCC’s deputy comptroller for credit and market risk, said in a statement.
The complex financial instruments, which take the form of futures, forwards, options and swaps, derive their value from an underlying investment or commodity such as currency rates, oil futures and interest rates. They are designed to reduce the risk of loss for one party from the underlying asset.