5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives

Tyler Durden's picture

Submitted by Michael Snyder of The Economic Collapse blog,

When is the U.S. banking system going to crash?  I can sum it up in three words.  Watch the derivatives.  It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent "investments" in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

If derivatives trading is so risky, then why do our big banks do it?

The answer to that question comes down to just one thing.


The "too big to fail" banks run up enormous profits from their derivatives trading.  According to the New York Times, U.S. banks "have nearly $280 trillion of derivatives on their books" even though the financial crisis of 2008 demonstrated how dangerous they could be...

American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them. But the 2008 crisis revealed how flaws in the market had allowed for dangerous buildups of risk at large Wall Street firms and worsened the run on the banking system.

The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.

But all computer models are based on assumptions.

And all of those assumptions were originally made by flesh and blood people.

When a "black swan event" comes along such as a war, a major pandemic, an apocalyptic natural disaster or a collapse of a very large financial institution, these models can often break down very rapidly.

For example, the following is a brief excerpt from a Forbes article that describes what happened to the derivatives market when Lehman Brothers collapsed back in 2008...

Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?


The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.

After the last financial crisis, we were promised that this would be fixed.

But instead the problem has become much larger.

When the housing bubble burst back in 2007, the total notional value of derivatives contracts around the world had risen to about 500 trillion dollars.

According to the Bank for International Settlements, today the total notional value of derivatives contracts around the world has ballooned to a staggering 710 trillion dollars ($710,000,000,000,000).

And of course the heart of this derivatives bubble can be found on Wall Street.

What I am about to share with you is very troubling information.

I have shared similar numbers in the past, but for this article I went and got the very latest numbers from the OCC's most recent quarterly report.  As I mentioned above, there are now five "too big to fail" banks that each have more than 40 trillion dollars in exposure to derivatives...

JPMorgan Chase


Total Assets: $2,476,986,000,000 (about 2.5 trillion dollars)


Total Exposure To Derivatives: $67,951,190,000,000 (more than 67 trillion dollars)




Total Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)


Total Exposure To Derivatives: $59,944,502,000,000 (nearly 60 trillion dollars)


Goldman Sachs


Total Assets: $915,705,000,000 (less than a trillion dollars)


Total Exposure To Derivatives: $54,564,516,000,000 (more than 54 trillion dollars)


Bank Of America


Total Assets: $2,152,533,000,000 (a bit more than 2.1 trillion dollars)


Total Exposure To Derivatives: $54,457,605,000,000 (more than 54 trillion dollars)


Morgan Stanley


Total Assets: $831,381,000,000 (less than a trillion dollars)


Total Exposure To Derivatives: $44,946,153,000,000 (more than 44 trillion dollars)

And it isn't just U.S. banks that are engaged in this type of behavior.

As Zero Hedge recently detailed, German banking giant Deutsche Bank has more exposure to derivatives than any of the American banks listed above...

Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.

For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart.

At this point our economic system is so completely dependent on these banks that there is no way that it can function without them.

It is like a patient with an extremely advanced case of cancer.

Doctors can try to kill the cancer, but it is almost inevitable that the patient will die in the process.

The same thing could be said about our relationship with the "too big to fail" banks.  If they fail, so do the rest of us.

We were told that something would be done about the "too big to fail" problem after the last crisis, but it never happened.

In fact, as I have written about previously, the "too big to fail" banks have collectively gotten 37 percent larger since the last recession.

At this point, the five largest banks in the country account for 42 percent of all loans in the United States, and the six largest banks control 67 percent of all banking assets.

If those banks were to disappear tomorrow, we would not have much of an economy left.

But as you have just read about in this article, they are being more reckless than ever before.

We are steamrolling toward the greatest financial disaster in world history, and nobody is doing much of anything to stop it.

Things could have turned out very differently, but now we will reap the consequences for the very foolish decisions that we have made.

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himaroid's picture

OK tbond investors, keep it hedged and watch the whipsaws. The big banks, big corps, big sovereigns AND the fed holding tons of treasuries. My spidey senses tell me something is up. Lean bullish, just not too far.

Silky Johnson's picture

It's a sick joke. I always read derivative as someone is getting pounded.

BlindMonkey's picture

Are you talking like a cop hitting someone with a nightstick while yelling "stop resisting! Stop going for my gun!"?? Or something else?

SoberOne's picture

So perhaps not a Jefferson quote,  but first by inflation then by deflation is their greatest scheme after all. One last pop and all the worlds wealth will be theirs. Long guillotines.

Manthong's picture

OK.. so BFD..

How do they compare to DoucheBank?

Methinks like only 75 percent or so.

hungrydweller's picture

Indeed.  Also, derivative trading is a zero sum game.  If the TBTF are racking up "enormous profits" who is taking the enormous losses?

Manthong's picture

..some little old black lady in D'toilet.

or some grape farmer in Espankya.

The Doofus's picture

Who cares about the too-big-to-fails?  And who cares about the global financial ponzi scheme?  I've got other fish to fry.  At least beer is still cheap.  If you see me on the side of the road selling pencils, throw me a sandwich.

Manthong's picture

"Who cares about the too-big-to-fails?"

..just do not have much there when the SHTF.

Four chan's picture

trillions of worthless script, its all worth zero to me. 

marathonman's picture

Under early 2000's changes to bankrupcy laws, derivative claims are higher than most other claims in bankrupcy court.  Counter party risk is a bitch. Very profitable when used 'properly' though.  It's part of a larger 'Plan B' strategy of course.



RaceToTheBottom's picture

There needs to be a better common definition of derivatives.  It is always portrayed as like gambling on a baseball game or even any sport.  But it is far worse.  A game ends, it has innings or quarters and everyone knows the score.  

Derivatives allow someone to bet without showing their bet against a scorecard that is different for each firm.  More like a bunch of bets against a season of games, all waiting until the end of the seaon to settle up...

LibertyBear's picture

It makes you wonder with the trillions of derivatives what the real value of Gold and Silver are

DoChenRollingBearing's picture



Doofus guy, how about:

Wearing the Bearing?

Drunk in Grease?

The Component?


Excursionist's picture

Who is taking the enormous losses?

Banks can make money from derivatives in only a handful of basic ways (in ascending order of risk):

1. Custodial fee;

2. Brokerage fee in which they incur no risk exposure;

3. Liquidity fee in which they believe they incur little or no risk exposure because of hedging;

4. P&L from unhedged, directional exposure.

The vast majority of the numbers quoted in this blog post fall into the third category.  The 'enormous losses' are incurred by various market participants using banks for liquidity.

All is well here folks!  You can move along..

The Big Ching-aso's picture

Hey keeping this derivative golem from unraveling at all costs is better than having tanks in the street. Those Abrams' are a real bitch to parallel park too, man. Traffic jams up the ass. Then throw in an Asian behind the wheel and then let's talk about unimaginable chaos.

BraveSirRobin's picture

Oh come on... it's only 40 coins minted up at the Treasury Dept for each bank.

Manthong's picture

damn you.. now I have to try to get a singing Eric Idle out of my head.  :-)

Vampyroteuthis infernalis's picture

When the derivatives bomb blows up, there is no way in hell the big banks are going to pay out money they do not have. They will get together and have a derivatives jubilee as long as the involved banks agree to forgive each other. God help those whose are not part of the jubilee as they are declared insolvent immediately.

NoPension's picture

"even though the financial crash of 2009 proved how disastrous this can be"

And just how was it so disastrous for them? They were rewarded,made whole, and given MORE!

What you subsidize, you get more of.

A82EBA's picture

Yep. A society hell bent on living on credit will get the banking system it deserves.

Manthong's picture

they are called "depositors" or better.. "unsecured creditors".

geekz_rule's picture

this isn't idiocy, nor ignorance, this is Evidence.. of an agenda .. to destroy the US economy

DipshitMiddleClassWhiteKid's picture

Since these derivatives are OTC, I wonder how many of these things are based on demographic data..


If x amount of people die within a certain amount of time in x amount of square miles...PAY OFF IS 340453 Trillion!!!



Until I can trade CDS on single and multi entitys through my retail account in ny moms basement after ripping the bong, FUCk THE BANKS!!



max2205's picture

When I play, I play at the $10 min tables......

hungrydweller's picture

Good on you.  I look for the $5 min tables.

Implied Violins's picture

I stick to the nickel slots. They still come around with drinks every couple hours. No babes or blow tho.

OldPhart's picture

I moved to the quarter slots...drink lady silently shows up once an hour on a bypass run to the tables, keeps me on my toes.  And the babes are as young as 50 around me.  Win big, three or four hundred, and the dentures come out.  Talk about blow!

pauhana's picture

Bend over, please, and kiss your ass goodbye.

Lazzy Rabbit's picture

What - watch the dirivatives... You mean Bob Chapman was right all along back in 2008 :D - ;)

spankthebernank's picture

They're not exposed, the shell companies they house the "asset" in are exposed.

One And Only's picture

"so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable. "

What is this number?

¥ 1,092,528,004,875,913


NoDebt's picture

"After the last financial crisis, we were promised that this would be fixed.

But instead the problem has become much larger."

Lay that up against the now almost-explicit backing of the Fed to bail these big banks out (which they will ALWAYS do, for the same reason they did it in 2008- the alternative is too hideous) and you have the modern question of what happens when an unstoppable force collides with an immovable object.

If you knew your losses would always be covered, why wouldn't you bet big?

Grande Tetons's picture

Hey, ND.  Pass on my regards to the shark jumper. I think he is right again.  

Enjoyed your posts over this last year. Same holds true for the Doc, EB, Yen.EKM1, Miffed.....and so forth. 

What the fuck am I doing here? Nothing. What could I be doing? A lot more. 

Adios, Amigos. 

NoDebt's picture

Understood, GT.  I'll let him know.  I have a feeling you're heading out for a similar reason reason he did.  At a certain point you've said all you can say, you find you're repeating yourself a lot, and there's just better things to do with your time.  The Fed and central banks have made such a mockery, it's like playing a rigged game and trying to pretend it's not rigged.  After a while, you run out of gas in the tank.

Vaya con dios, my friend.  Sorry to see you go, but I understand.

Just in case you ever want to drop a line privately:  dnickle@comcast.net

TheReplacement's picture

I say let them fail.  Let the FED bail them out with funny money.  Enjoy the revolution.  No longer honor the dollar nor any debts related.  All those people with gajillions of Fedbux in an electronic system can have the ones and zeroes emailed to them (hint:  the landscaper, chef, chauffeur, poolboy, au pair, and the cleaners are not going to accept emailed ones and zeroes as payment so have fun maintaining your estates and feeding yourselves).  The rest of us just start over with whatever we have.

eddiebe's picture

 I can't figure out how the whole economy would just grind to a halt if 5 banks cease to exist. I for one would be willing to give it a shot.

TheReplacement's picture

That day I stood on the precipice with anxiety and wonder.  As I stared into the abyss at my feet, my father walked up and stated, "There's only one way to know for sure."  And with that, my body was propelled off the dock and into the cool deep blue below.  After the coughing and desperate gasping for life, to my amazement, I did in fact survive while learning to swim.  What a great lesson from a good man.

...still pissed me off though.

Bindar Dundat's picture

Good old Yankee knowhow!  Yankee banking:-)

BTW Yankee is like a "quicky" but you are alone at the end -- very alone.

ZerOhead's picture

"For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart."

By "entire system" I think he means e-v-e-r-y-t-h-i-n-g...

ZerOhead's picture

Even (gasp!) Zero Hedge.

So I hope you have been paying attention to all the survival advice we have been giving out...

TheReplacement's picture

Tall building, check.

Nailgun, check.

Rope, check.

Shitgum... errm uh...

q99x2's picture

At this point our economic system is so completely dependent on these banks that there is no way that it can function without them.

If we die the day Loyd Blankfein and Jamie Dimon are hung then so be it. Give me liberty or give me death.

ZerOhead's picture

"Give me liberty or give me death."

Those are 7 words you should never say to a cop...

TheReplacement's picture

She didn't mind when I said it this morning after you left for work.

Relax.  I'm just kidding.  She was mad as hell.

NoDecaf's picture

be careful, dude's got no pension. that's just one notch below postal.