Q2 Total Gross Notional Derivatives Outstanding: $639 Trillion

Tyler Durden's picture

Earlier today, the BIS, which has been doing everything in its power today to defend the 1.27 support in the EURUSD since the market open this morning, released its H1 OTC derivatives presentation update. There was little of material note: total OTC derivatives were virtually unchanged at $639 trillion gross, representing $25 trillion in net outstanding (market value), and $3.7 trillion in gross credit exposure. Here the PhD theorists will say gross is irrelevant because Finance 101 said so, while the market practitioners will point to Lehman, counterparty risk, and less than infinite collateral to fund sudden implosions of weakest links in counterparty chains, and say that it is gross (which until a recent revision of BIS data had been documented at over $1 quadrillion) that mattered, gross which matters, and gross which will always matter until finally everything inevitably collapses in a house of missing deliverable cards. Because not even the most generous sovereigns and central banks can halt the Tsunami once there is a failure of a major OTC Interest Rate swap counterparty. And whereas Basel III had some hopes it would be able to bring down the total notional in derivative notionals slowly over the next few years with a gradual deleveraging across all financial firms, the bankers fought, and the bankers won, because the last thing the current batch of TBTFs can afford it admit there is any hope they can ever slim down. The will... but never voluntarily.


And in tabular form:

Some details from the OTC:

Total notional amounts outstanding of OTC derivatives amounted to $639 trillion at end-June 2012, down 1% from end-2011 (Graph 1, left-hand panel, and Table 1). The appreciation of the US dollar against key currencies between end-2011 and end-June 2012 contributed to the decline by reducing the US dollar value of contracts denominated in euros in particular. The overall decline was driven by interest rate contracts (–2%). Credit derivatives notional amounts also continued to decline (–6%). In contrast, foreign exchange contracts outstanding rose by 5% to $67 trillion.


Gross market values, which measure the cost of replacing existing contracts, dropped by 7% to $25 trillion (Graph 1, right-hand panel). This amounts on average to slightly less than 4% of notional amounts outstanding.


Gross credit exposures, which measure reporting dealers’ exposure after taking account of legally enforceable netting agreements, mirrored the decline in total market values, falling to $3.7 trillion, which represents 14% of the total market value of OTC derivatives. Since the end of 2008, gross credit exposures have tended to move in a narrow band of 14–16% of market values. This compares with a range of 19–24% in the mid-2000s. Gyntelberg and Vause (2012) calculate that about half of dealers’ gross credit exposures are covered by collateral.

Since gross notionals in most categories declined (boring) except for FX, here is the breakdown of what drove this rise:

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JPM Hater001's picture

Beeks?  Where in the hell is Beeks!!!

redpill's picture

$639 Trillion?  Pfft.  Wake me up on Quadrillion Day.

Winston Churchill's picture


Whats ten times the WORLD GDP.

Nothing to worry about,move along now.

NotApplicable's picture

In before the "That's just notional!" crowd.

Also, before the "What's the net, like two bucks?" crowd.

Systemic, bitchez!

El Viejo's picture

<<< Hyper-Inflation

<<< Credit Risk Collapse


And the greatest risk is: Audience make your choice.

NotApplicable's picture

I choose both. (Exeter's Pyramid, FTW)

economics9698's picture

Someone explain this, I cannot wrap my head around $639 trillion.

Dr. Engali's picture

Well there are approximatly 500 billion galaxies in the universe, and if each galaxy has an average of 300 billion stars that come out to 150 trillion. So in other terms about 4.26 universes worth of stars. Give or take a quarter of a universe.

fuu's picture

500,000,000,000 x 300,000,000,000 = 150,000,000,000,000,000,000,000 which is 150 Sextillion.


Dr. Engali's picture

You are correct sir....recalculating....2130 galaxies worth of stars.

recidivist's picture

Another perspective is that it is 40 times the size of the USD money supply.  For every dollar somebody holds, there is $40 worth of card houses.

TwoShortPlanks's picture

OMG, what's that yellow shiny thing on the horizon...wow, it's headed our way, and really fast too...dear Lord, it's GOLD!

Let's see now. Assume 10% Derivative value is allowed to burn-off, that leaves about $575T. Divide that by Central Bank Gold, as well as a huge chunk of the OTHER, 70% sitting out there (Coz CBs are privately owned by the same people which have their Gold stored - for free - in vaults hidden under the BIS in Switzerland), so assume 28%+50%=78% of 5B Oz's...so 3.9B Oz's.

Assume a 50% Gold to OTCD ratio, that's only $73,718/Oz...........any sellers?

Ctrl_P's picture

You gonna add the unfunded liabilities into the mix as well?

NooooB's picture

I vote that we stop calling them "derivatives", and start calling them "pieces of eight". Who's with me?!! YARRGGHH! Me harties!

ebworthen's picture

I'll raise a wooden mug of grog to that.

Quinvarius's picture

I be callin' mine "pieces of 16"! Needed the leverage!  Arrraggh!

R_J's picture

[Edwin Vieira Jr.] Pieces of Eight : The Monetary Powers and Disabilities of the United States Constitution

Mr Lennon Hendrix's picture

The future holds something inbetween, but let's be simple and examine these two scenarios and what role the Central Banks will have dictating the terms.

Hyperinflation:  This will be cause when there is a geo-political trigger, like if Israel bombs Iran or Syria (with a big attack, moreso than what is currently occuring) and Russia and China decide to step in.  Then the East will dump the assets of the West and the Fed and ECB will be forced to absorb the derivatives.  This will cause a panic and other Western institutions like the IMF and BIS will help the Fed absorb the loss.  There will be terms that will be thrust upon the Nation-States of America and Europe of interest bearing debt that will keep chains on them for a long time.

Credit Collapse:  Economics in its current form is shown to be anything but a science.  The "rational consumer theory" and other such factless based therums are thrown under a bus.  Neo-Keynesian is shown to be a sham when the Fed's policies go up in smoke and economics and finance with it is turned on its head.

Quinvarius's picture

Credit collapse means people default and there is no demand on the money supply to pay back the debt which spawned it anymore.  Our stupid system always ends up in worthless money no matter what.  I think it becomes worthless a whole lot faster under a credit collapse than just mad printing becasue so much of it already exists as a product of debt.

Mr Lennon Hendrix's picture

We were at a quadrillion.  The banks did a decent job deleveraging while the PWG bought the toxic assets that would have failed thus causing the markets to panic. 

Bow to Ben Bernanke!  Lord of the Netherworld, Rider of Unicorns, Dreamer of Dreams.

Winston Churchill's picture


Not so sure about that.

Didn't they change what they counted a few years back,a bit like CPI.

When it gets serious.they lie.

Mr Lennon Hendrix's picture

I was about to rewrite the above when you commented. 

The "deleveraging" was done primarily by the Fed, and just because a bank which is not audited buys toxic derivatives does not make the counter party whole. 

northman's picture



Tyler can you please post something mocking Ackman and his JCP investment? Sorry for threadjacking, but he is such a hack that it makes my stomach turn.


"You know how I know it's going to work? A girl in the lunch room asked me for a pin..."



Newsboy's picture

New Monetary Regime for Old.

New Monetary Regime for Old.

New Monetary Regime for Old...

Overfed's picture

Is there even $639 Trillion in the entire Milky Way galaxy?

adr's picture

Maybe deep inside the supermassive black hole at the galaxy center there is a giant diamond.

Lloyd Blankfein has already pledged the $639 Trillion dollars to buy it for his favorite whore.

Overfed's picture

Fuck buying an island, I want a private planet!

Dealer's picture

This should end well

adr's picture

Gross only matters when it is revenue. Then you don't need to net anything. See Amazon for example.

I still don't know how you can create a derivative value greater than the entire sum production of human history in less than ten years.

That's some quality accounting right there.


Instead of going Galt, I think I am just going to go stupid. I bet I can get more cash from the government with brain damage than I ever could trying to work for it.

NotApplicable's picture

The key, as I see it, is to be stupid enough to profit, while ensuring there are still even stupider people to pass the costs off to.

Thing is, I've watched this game a time or two. It never ends well.

falak pema's picture

How many institutions are involved and what % is controlled by the TBTF banks? 

these are all electronic money bets OTC and if all the banks were nationalised, in the case of a mega crisis, like 2008 when they were ALL defacto under TARP type control, how could an economic CZAR named by central banks resolve this issue; THIS TIME ROUND WITHOUT INTERFERENCE BY THE GS SQUID SHILLS LIKE PAULSON?

I assume that we stay in CB dictat hegemony but this time reporting to State Czar not to the oligarchy PDs; netting out these balances by negotiation/decree and telling the OTC players  : "fukk you and drink your cup to the dregs." would be his role with congress/parliamentary backing to reign in and break down these banks to their Glass-Steagall components. Clean out the investment banking crap via enforced debt jubilees  to save the  retail banking and pension funds vehicles. 

This money is not money; this debt is not debt, and these institutions are not institutions that deserve to survive per se.

This scenario assumes the executive, legislature and judiciary as the guts to face the Oligarchs and defy them in th people's interest. Fairy tale of huge proportions in the current momentum. 

So things don't like being resolved from top down but thru bottom up.

butchee's picture

Bottom's up to that....  A sante!

oldman's picture



I don't know how anyone with an ounce of humanity in their bones could possibly disagree with the above; it is all that an honest person can say!

You have an sense of simplicity and equity that is more than elegant.

Thanks               om

slackrabbit's picture

it would be easier to rendition them using the patriot and ndaa acts........oh the irony...

R_J's picture

Great Wordings:

Please Please, Could you/anyone please "word" this for the rest of the 99,9 %, who doesnt get...ehmm...Wordings? It would be a goodie to throw in for cristmas, though it might be a tad late...hmm!


sarc & respect




LouisDega's picture

Meinge.. Thats a lot of fucking money.

GoingLoonie's picture

Sooooooo, that is where the big salaries and bonuses came from....


The actual value of derivatives is levered over 25 times, and pay was based on this

"Levered Value."  Not reality.


Is this still a bubble?

Mad Mad Woman's picture

GL.....you're funny.  "Is this still a bubble?"  FUCK YEA!!

When this pops it will get real ugly real quick. I wouldn't want to be a banker or a stockbroker when the shit hits the fan. TBTF's can FAIL bitchez!!

CrashisOptimistic's picture

I wonder if people do realize that no country has ever defaulted on debt it borrowed from the IMF.

Yet Greece is headed for that accomplishment at high speed, and can you imagine how many credit default swaps there are on that particular few hundred billion Euros?

Can you also imagine how big a piece of that US banks have?  Which is, of course, the point.  You might net the swaps to a lower number if you take Bank 1's position vs Bank 2's position, but one of those banks will go under nonetheless.

Matt's picture

EDIT: misread from notional vs gross. 

 There probably isn't $100 Billion in CDS on Greek debt left in existance. You see, crisis averted. Just kick the can until all the CDS on Greek debt expire, and no one has exposure. Much less expensive compared to having another Lehman event.

CrashisOptimistic's picture

Expire?  The swap may only expire when the debt matures and is repaid.

Nothing prevents rolling the swap into the next issuance, either.  

Remember, swap transactions generate commissions.  There are a lot of guys out there talking people into writing and buying swaps, so they can collect commissions.

Fix It Again Timmy's picture

Well, that should be enough to get the garage painted....

q99x2's picture

Situation calls for the power of positive thinking. Covert all the contracts to base pi and baffle them with bullshit. It will take everyone centuries to determine if anything is wrong.

Mr Lennon Hendrix's picture

One of the most humorous statements made by anyone who thinks they know something is when Webster G Tarpley says "we need to get rid of derivatives" and then he says "we should Nationalize the Fed and print trillions of dollars at zero interest".
How about that for an oxymoron.

NotApplicable's picture

Amazing at how one can carry such a disonnect between the criminal-based reality he chronicles and his  belief system called nationalism that is the supposed cure.


Dr. Engali's picture

The concentrated position in dollar contracts is good for stability...especially when the Bernank is printing the shit out of them. 

adr's picture

Space explorers are using telescopes to search for Dyson Spheres. Even though they postulate there is enough mass in our solar system to complete such a sphere at a distance of 1AU around our sun, the sphere would not be structurally sound. This has led scientists to believe that a search is more likely to find Dyson Rings, a ring formation much like those that were popularized by the video game series Halo, from Bungie Studios owned by Microsoft. The hope is that finding such a structure will prove that it is possible to fully harness the energy of a star to provide infinite energy for the inhabitants of the system. The surface of a Dyson Sphere has the possibility of providing living space for over 10 Quadrillion inhabitants.


So maybe that is where all the money went. The ultimate Krugmanian fantasy.

slackrabbit's picture

you would make larry niven proud...

Urban Redneck's picture

I wonder who was holding out any hope that Basel III had any chance of heading the inevitable off, before Timmy G's team shit canned it last Friday?