U.S. commercial bank revenues down 15.5% in third quarter

The Office of the Comptroller of the Currency (OCC) said U.S. commercial banks and savings associations reported trading revenues of $ 6.8 billion in the third quarter of 2021, down 15.5 percent from previous quarter.

According to Quarterly report on banking, trading and derivatives activities, Trading revenue in the third quarter of 2021 was down 1.2% from a year ago, down from $ 6.9 billion in the third quarter of 2020.

The OCC said that while a total of 1,357 national and state commercial banks and savings associations in the United States reported trading and derivatives activity at the end of the third quarter of 2021, a small group of large financial institutions continued to dominate the trading and derivatives business.

He said that in the third quarter of this year, four major commercial banks accounted for 89.3% of the banking sector’s total notional amounts and 78.1% of the sector’s net credit exposure.

The trading income of the Consolidated Bank Holding Company (BHC), which the OCC says provided a “More complete picture” trading revenue in the banking system, amounted to $ 14.2 billion in the third quarter of 2021, down 39.7% from the previous quarter.

The decline in quarter-over-quarter trading income is primarily due to lower income from interest rate and equity trading instruments, according to the OCC.

The report indicated that prior to the 2008 financial crisis, banks’ trading income typically ranged from 60% to 80% of BHC’s consolidated trading income.

Since the crisis and the adoption of banking charters by former investment banks, the percentage of bank trading income to consolidated trading of BHC has decreased and is now generally between 30 and 50%.

“This decline reflects the significant trading activity of the former investment banks which, although included in the results of BHC, remains outside the insured commercial banks”, the OCC said in its report.

“More generally, commercial banks and insured US savings associations have more limited legal powers than their holding companies, especially in commodity and equity trading.”

Derivatives contracts remained focused on interest rate products, which accounted for 71.4% of total derivative notional amounts, while the percentage of centrally cleared derivative transactions decreased quarter over quarter for reach 39% in the third quarter of 2021.

Last week, William R. Emmons, assistant vice president and chief economist at the Federal Reserve Bank of St. Louis, said the number of US banks was shrinking.

According to Emmons in a December 9 blog post, the number of U.S. banks fell from an all-time high of 30,456 in 1921 to 4,377 at the end of 2020, a drop of 86%.

“The long-term decline in the number of commercial banks shows no signs of ending”, said Emmons. “Bank failures have become much less common, but the rate of chartering new banks has also become insignificant. Meanwhile, bank mergers continue at a historically high percentage rate. “



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