Financial Weapons Of Mass Destruction: Top 25 US Banks Have 222 Trillion Dollars Derivatives Exposure

Tyler Durden's picture

Authored by Michael Snyder via The Economic Collapse blog,

The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes.  Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives.  In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve.  As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system.  But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.

During the great financial crisis of 2008, derivatives played a starring role, and U.S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great.

But now it is happening again, and nobody is really talking very much about it.  In a desperate search for higher profits, all of the “too big to fail” banks are gambling like crazy, and at some point a lot of these bets are going to go really bad.  The following numbers regarding exposure to derivatives contracts come directly from the OCC’s most recent quarterly report (see Table 2), and as you can see the level of recklessness that we are currently witnessing is more than just a little bit alarming…


Total Assets: $1,792,077,000,000 (slightly less than 1.8 trillion dollars)

Total Exposure To Derivatives: $47,092,584,000,000 (more than 47 trillion dollars)

JPMorgan Chase

Total Assets: $2,490,972,000,000 (just under 2.5 trillion dollars)

Total Exposure To Derivatives: $46,992,293,000,000 (nearly 47 trillion dollars)

Goldman Sachs

Total Assets: $860,185,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $41,227,878,000,000 (more than 41 trillion dollars)

Bank Of America

Total Assets: $2,189,266,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $33,132,582,000,000 (more than 33 trillion dollars)

Morgan Stanley

Total Assets: $814,949,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $28,569,553,000,000 (more than 28 trillion dollars)

Wells Fargo

Total Assets: $1,930,115,000,000 (more than 1.9 trillion dollars)

Total Exposure To Derivatives: $7,098,952,000,000 (more than 7 trillion dollars)

Collectively, the top 25 banks have a total of 222 trillion dollars of exposure to derivatives.


If you are new to all of this, you might be wondering what a “derivative” actually is.

When you buy a stock you are purchasing an ownership interest in a company, and when you buy a bond you are purchasing the debt of a company.  But when you buy a derivative, you are not actually getting anything tangible.  Instead, you are simply making a side bet about whether something will or will not happen in the future.  These side bets can be extraordinarily complex, but at their core they are basically just wagers.  The following is a pretty good definition of derivatives that comes from Investopedia

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

Those that trade derivatives are essentially engaged in a form of legalized gambling, and some of the brightest names in the financial world have been warning about the potentially destructive nature of these financial instruments for a very long time.

In a letter that he wrote to shareholders of Berkshire Hathaway in 2003, Warren Buffett actually referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Warren Buffett was right on the money when he made that statement, and of course the derivatives bubble is far larger today than it was back then.

In fact, the total notional value of derivatives contracts globally is in excess of 500 trillion dollars.

This is a disaster that is just waiting to happen, and investors such as Buffett are quietly positioning themselves to take advantage of the giant crash that is inevitably coming.

According to financial expert Jim Rickards, Buffett’s Berkshire Hathaway Inc. is hoarding 86 billion dollars in cash because he is likely anticipating a major stock market downturn…

Far from a bullish sign, Buffett’s cash hoard could mean he’s preparing for a market crash. When the crash comes, Buffett can walk through the wreckage with his checkbook open and buy great companies for a fraction of their current value.


That’s the real Buffett style, but you won’t hear that from your broker or wealth manager. If Buffett has a huge cash allocation, shouldn’t you?


He knows what’s coming. Now you do too.

Warren Buffett didn’t become one of the wealthiest men in the entire world by being stupid.  He knows that stocks are ridiculously overvalued at this point, and he is poised to make his move after the pendulum swings in the other direction.

And he might not have too long to wait.  In recent weeks I have been writing about many of the signs that the U.S. economy is slowing down substantially, and today we received even more bad news

Despite high levels of economic confidence expressed by business owners and consumers, one key indicator shows that it has not translated into much action yet.


Loan issuance declined in the first quarter from the previous three-month period, the first time that has happened in four years, according to an SNL Financial analysis of bank earnings reports filed for the period. The total of recorded loans and leases fell to $9.297 trillion from $9.305 trillion in the fourth quarter of 2016.

This is precisely what we would expect to see if a new economic downturn was beginning.  Our economy is very highly dependent on the flow of credit, and when that flow begins to diminish that is a very bad sign.

For the moment, financial markets continue to remain completely disconnected from the hard economic data, but as we saw in 2008 the markets can plunge very rapidly once they start catching up with the real economy.


Warren Buffett is clearly getting prepared for the crisis that is ahead.

Are you?

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aurum4040's picture

Yawn, this article is so 2007. 

StackShinyStuff's picture

Why do they have to learn from their past mistakes?  I think they learned plenty.  They will get bailed out when it goes south again.

Mr 9x19's picture

they learned to make it infinite...

and better be ! remember the advises from the shoe shine boy.....

Anteater's picture

The quirky part of this story is that Berk Hath C stock is a derivative itself, you don't 'own' anything, just an index, like GLD/SLV, but without any fungible asset backing at all, other than the Next Bigger Sucker yet to graduate a high school, and put his or her minimum wage into stawks, just like his parents. Once Trump passes his No Taxes for Old Men bill, the rush to tangible physical assets that can be passed tax-free to the New Gilded Age barons and baronesses will spike large-lot real estate like it's 1999, leaving high yield penny stocks the pink sheet playground of the paupers.

Al Gophilia's picture

Debt based money based on financial fraud. It's the international game payed by elites, employing we farm animals to produce for them. It's the benign model of Auschwitz. They have exchanged their gas Chambers for factories and battlefields. Work will make you free.

BennyBoy's picture


I have the notion that nothing will go wrong.

Arnold's picture

I found the DB USA exposure the most interesting.
But I am working with old numbers.
DB continues to evade the grave, but wasn't too long ago that their exposure was $71 trillion company wide.
Looks a though the rest of the Prime Movers thought it was a good Idea, Dance with Derivatives.

Last of the Middle Class's picture

You will work for free is more like it. As the derivative monster sucks up everything in its path including wage increases and the metric no one wants to talk about, real personal purchasing power. This is economics 101, we're devaluing the dollar, the ones in your pocket, your income, your retirement, your 401K and every asset you have to cover massive government debt, and the best thing about is, it's for your benefit. LMFAO

meta-trader's picture

she was a waitress in a cocktail bar now she owns a jet...

Big Fat Bastard's picture

And the only way to correct it is falling prices to dramatically lower and more affordable levels accelerating the economy like nothing else can.

Ascew's picture

But I thought deflation was the worst possible thing that could happen.

divingengineer's picture

It's brilliant really, these skidmarks have created $222 Tillion worth of exotic financial assets out of thin air, often without even owning the underlying assets. And they see no problem with that, just ask a big bank CEO.
One day, probably a long time from now, POW!!!
They all have no choice but to hold this shit show together, their lives literally depend on it.

Shemp 4 Victory's picture


Yawn, this article is so 2007.

...and so 1997 as well. The fake* "Nobel Prize laureates" seem to have discovered the secret to generating once-in-a-million-years events on a ten-year cycle.

1998 - Long Term Capital Management

2008 - MERS Invades

2018 - (yet to be named surreal fiasco)

Better drag out Tank Paulsen and oil up Chairman Yellen's printer, it's bailout time again.



*Sveriges Riksbank Nobel Economics Prizelike Participation Trophy

29.5 hours's picture

"still haven’t learned from their past mistakes"

Snyder is such an innocent. What mistakes?

GUS100CORRINA's picture

Financial Weapons Of Mass Destruction: Top 25 US Banks Have 222 Trillion Dollars Derivatives Exposure

My response: How did we get here? One word: CLINTON

I keep asking myself the following question: Why do the BANKS need to be in the DERIVATIVES market????

As of this time, I have NO ANSWER.

Leveraged Algorithm's picture

Just in my bathtub.....

Fake Trump's picture

Still in bed having a morning session...

Fake Trump's picture

Horrendous. Nobody can save them. Not even Trump or The FED. Collapse is inevitable. Need a Black Swan to do the job. My guess is Trump Moment is the Black Swan.

Big Fat Bastard's picture

Don't be a drama queen. The only path forward is falling prices to dramatically lower and more affordable levels.

divingengineer's picture

I'm not sure that is an option they would find palatable.
Falling asset prices for us might work, but for them?
That would be a problem.

Big Fat Bastard's picture

They don't have much control over that now do they?

divingengineer's picture

Are you serious?
They seem to be able to control the markets now.
Whatever went wrong in 2008 has been "fixed".

divingengineer's picture

Don't count them dead yet, the worlds governments and CBs will amaze us all at the lengths they will go to to save the big banks.
It must fail eventually, but something tells me we haven't seen anything yet.

CRM114's picture

Forgive me, but why was 2007 a "mistake" for these people?

Nobody from this lot went bust, nobody went to jail. They made stacks of money leading up to 2007 and they are making stacks now.

East Indian's picture

Forget the Financial WMD; we may soon see a real WMD in action in Syria.

Fake Trump's picture

All mom & pop should exit now. A flash crash is coming.

Al Gophilia's picture

They have to crash it before you get to withdraw your equity. You withdraw your equity and they go broke. You only have to look at the Canadian bank run to figure out the truth of that. Run to your bank. Run for your life.

TeraByte's picture

Of course these institutions have the capital to cover the worst case scenario.

krage_man's picture

This is meaningless and misleading artcle.

You need to know all the terms of agreements for those derivatives to see if there is any danger there.

The problem is 

if there is a sudden spike of volatility, unexpected rate increase, etc, then collateral value will drop, which will results in margin calls. So the market participants must have enough collateral to pledge even in case of volatility, which post-crises regulations take case of... one can agrue how well they do so though...

Big Fat Bastard's picture

The problem is encouraging millions of suckers to overpay multiples for depreciating assets like houses.

Big Fat Bastard's picture

And the majority of it is rotting toxic mortgages on tens of millions of houses.

Anteater's picture

I just looked at a (beautifully done) fixer-upper on a 1962 rambler on a quarter acre with a barn door garage for $452,000, that's for 1,000 sf 3BR in hicksville subdivision, or a square foot price that you could build soon-abandoned Class A office space for. You can get a new 1,000 sf condo in SEAsia, all tile, for $40,000, with offstreet parking and security guard, lol. And no winters.

PhiPhi's picture

90 Square Meters Condo in Bangkok will set you back approx $185k at the low end these days, however, you can still get a half-acre of land and build a 3br house in some of the most beautiful sub-tropical locations starting from $50k.

Big Fat Bastard's picture

Build it here for that price.

Honest Sam's picture

Bugs, heat, snakes, tiny girls with no tits, humidititty, and that awful language.

Temperate climate beats sub-tropical every minute of the day. 

Big Fat Bastard's picture

Build it here for that price. No need to go to a third world slum to do it.

Jethro's picture

Are you biased against Malaria, Dengue, etc. or something?

Big Fat Bastard's picture

That dumb fuck is no more in SE Asia than I am in Boston. 

rejected's picture

Move there,,, The jobs are there as well. And they just love Americans.

moorewasthebestbond's picture

If you told me 2 years ago that Michael Snyder artiles would become a daily fixturehere on ZH  I would have laughed in your face (and been wrong).

Big Fat Bastard's picture

Nothing can prevent the rotting stench from stinking.

HalinCA's picture

Except you have only been a member for some 23 weeks ..

Singelguy's picture

I think this article is somewhat misleading. The total exposure may be $222 Trillion but what is the NET exposure? Derivatives can be long or short. If the net position is close to zero than the risk is minimal. Having said that, the FDIC insured banks should not be engaging in these "investments".

PhiPhi's picture

More like a lot misleading, Net exposure should be the key metric here but then again that's likely to be a fictional fudged measure.

HalinCA's picture

From pg 16 of

Net current credit exposure (NCCE): For a portfolio of derivative contracts, NCCE is the GPFV of contracts less the dollar amount of netting benefits. On any individual contract, current credit exposure (CCE) is the fair value of the contract if positive, and zero when the fair value is negative or zero. NCCE is also the net amount owed to banks if all contracts were immediately liquidated.


It looks like NCCE is 1/1000 of the notional exposure.  (My empasis)

From pg 3 of


Executive Summary

  • Insured U.S. commercial banks and savings associations (collectively, banks) reported trading revenue of $6.0 billion in the fourth quarter of 2016, $0.4 billion less (6.8 percent) than in the previous quarter and $1.7 billion higher (40.0 percent) than a year earlier (see page 4).
  • Credit exposure from derivatives decreased in the fourth quarter of 2016 as compared to the third quarter. Net current credit exposure (NCCE) decreased $79.6 billion, or 16.5 percent, to $402.2 billion (see page 8).
  • Trading risk, as measured by value-at-risk (VaR), decreased in the fourth quarter of 2016. Total average VaR across the top five dealer banking companies decreased $10.0 million, or 3.6 percent, to $264.0 million (see page 11).
  • Derivative notional amounts decreased in the fourth quarter by $12.3 trillion, or 6.9 percent, to $165.2 trillion (see page 14).
  • Derivative contracts remained concentrated in interest rate products, which represented 75.3 percent of total derivative notional amounts (see page 14).

The Office of the Comptroller of the Currency’s (OCC) quarterly report on bank trading and derivative activities is based on call report information provided by all insured U.S. commercial banks (including trust companies) and savings associations; reports filed by U.S. financial holding companies; and other published data. A total of 1,420 insured U.S. commercial banks and savings associations reported derivative activities at the end of the fourth quarter of 2016. A small group of large financial institutions continues to dominate derivative activity in the U.S. commercial banking system. During the fourth quarter of 2016, four large commercial banks represented 89.3 percent of the total banking industry notional amounts and 84.0 percent of industry NCCE (see table 4 in the appendix). 


Al Gophilia's picture

To what purpose are they if they NET out? Cui Bono,?

Singelguy's picture

Look at derivatives as a type of insurance. Different products are sold to different customers. The banks monitor all the products they sell and maintain a balance so that if they incur losses on one product it is made up for with gains on other products. In the meantime they make money on the premiums they collect for the "insurance" they sold.