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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Debugas's picture

can anybody remind me what is the global world GDP ?

isnt it 0,8 trln ? how that compares to casino derivative bets of banks totaling 200+ trln ?

A very big elephant is hiding in the very small room and i wonder for how long

Anopheles's picture

You slipped a few digits.  World GDP is around $80 trillion.

WTFUD's picture

THEY say $80 Trillion, $125 (PPP). Wouldn't bet this figure's not been DC & London Fixed.

Anopheles's picture

Another sensationalized article about derivatives. 

Why don't they say that the banks have written $222 trillion value in insurance policies? Derivatives are similar, just more complex.

It's like saying that a car insurance company has 10 million drivers insured and each driver has a million dollar liability policy, and simply multiply those numbers together and then claim that company has $10 trillion exposure?

Does that mean that insurance company is going to have to pay out $10 trillion in settlements?

Croesus's picture

Yes, but you're also omitting the fact that most of the derivatives exposure is tied to interest rates... let's hypothetically say that 2/3's are rate-related, and half of them wind up on the wrong side of the bet...that's STILL more than ANY of them can pay, if the market goes against them.

Somebody, somewhere will not be able to pay on their bad bets, and it won't take much to bankrupt them.

Big Fat Bastard's picture

The problem is the underlying assets are garbage. In this case houses, cars and defaulted credit card debt.

WTFUD's picture

Rise up this morning'

Smiled with the risin' sun . .

Three Little ducks (222) on my doorstep

Singing we're fucked, well & true

Singing this is our message to you ou ou

Don't worry, 'bout a ting 'cause every little ting, gonna be all-right . .

FarCanal's picture

All just parts of the One Bank, that control +40% of the Global Economy.

"All of these financial losses were internal: one tentacle of the crime syndicate (supposedly) “losing money” to another tentacle of the same entity, meaning they were just phony, paper-losses which never really existed. The tentacle on the receiving end of the “losses” was enriched by that amount, meanwhile the tentacle on the losing end was indemnified via (fraudulent) taxpayer-funded “bail-outs”. Heads I win; tails you lose.


previous commentaries have laid out the evidentiary foundation for a “Master Program” (computerized trading algorithm), by which this financial crime syndicate can (and does) literally manipulate all of the world’s markets. Further empirical evidence lies in the markets, themselves. The yo-yo like manner in which these markets move up and down, in synchronicity, day after day, month after month is impossible for any legitimate/functional market, let alone all markets, simultaneously."


They will Crash The Market when they are ready to extract the maximum from it and not before. how about 1998,2008,2018.....

Q-Q-Q's picture

"Nobody saw it coming" in the near future on every TV screen and newspaper is my prediction.

A. Boaty's picture

Don't worry. They have it all perfectly hedged.

1st Amendment's picture

Any idiot with half a brain understands you can't simply look at notional exposure to determine risk.  Given the impact of Dodd Frank and Volker, the vast majority of these derivative exposures are linked to clients transactions NOT speculation.  I'll never get back the 2 mins I wasted reading this trash

northern vigor's picture

The article's description of derivatives is  frigged up. 

Velocitor's picture

How is this legal?

northern vigor's picture

Luckily Citie helped write a bill that congress passed in late 2015, that the federal government will cover all derivative failures. 

Luckily congressmen don't have to pass an IQ test to be elected.

Jethro's picture

There are some potted plants that outshine Maxine Waters with regards to intelligence.

barysenter's picture

That's an act. All criminals play dumb. Congress tries to pull another bailout heist, their community will pay severely.

ajkreider's picture

The notional number is not a real exposure number.  That author konws this, but doesn't portray it as such.  This is not breitbart or cnn.  The board knows knows the difference between notional and real exposure.

What an embarrasing article.

NEOSERF's picture

Derivatives are like betting on last year's Cub's team pitching ERA and saying that it can be used to bet on John Lester's ERA for 2017..vaguely related but the team and other teams have changed so much, not likely to be correct

rpboxster's picture

Looks like they learned perfectly from past mistakes.  They can keep all the upside to these bets and offload any downside to the public.  Glad I didn't see Schwab on that list.  I like that outfit, as far as banks go.

koan's picture

"but apparently they still haven’t learned from their past mistakes"

It wasn't a mistake, they knew they would be bailed out it was written into the deal.
The people at the top were never going to lose.

Jethro's picture

$222 Trillion for just US banks, and the World Gross Product is about $79 Trillion this year. Just rub some dirt on it and move on? HAHAHAHAHAHA

Watson's picture

1. (for US banks) How much is under a part of the bank with FDIC protection (to me, need a good story for any of it). The gross does overstate the risk, but the net greatly understates it (Mr Credi Risk).

2. (For policymakers) Don't repeat the AIG mistake: AIGFP (where all the funny stuff was being done), was not the same as the sub-insurers, all of which were supposed to be ringfenced. Bush seemed to be persuaded that AIGFP/holding co failure would bring down the insurers. Even if it would have, personally I would have waited till seeing evidence of ringfence failure, and even then only plugged the gaps in the insurers. Mr Credit Risk can take the holdco.
In the current situation the strategy would be, despite noise and drama, to wait to see if any important bits look like failure (retail payment system, etc). But failure of large interbank payments where the ultimate beneficiary is _another_ large bank...well, here comes Mr Credit Risk again.


VW Nerd's picture

What's occurring is a replay of the same song.  Like last time, the outstanding debt instruments are just the spark.  The underlying derivatives are the powder keg.  The fed's best hope is to prevent the spark, hence propping up ALL markets directly through open market operations and indirectly through Federal (taxpayer) bailouts.  Think pension fund liquidity.  The Fed will have reached the end of their fraudulent rope when public psychology shifts in masse.  The Fed is good at money printing and lying (psy ops), but their effect is not limitless, especially with the alternative media and it's ability to disseminate truth.  The Fed know this and they are terrified.  Plan accordingly.

barysenter's picture

Let them die. Make them go to their friends they hocked & loandered us all to 1000x over to get it back.

Silver Savior's picture

It's all just crappy fiat currency. They might want to talk more about quadrillion, septillions and some other ones no one has heard of. It's all a scam. It could all go tomorrow and I would not care. Just dust off the money that was used for thousands of years.

Big Fat Bastard's picture

If its that crappy just send yours to me.

sam site's picture

Derivatives are fake insurance policies with only 10% collateral in the bank to pay losses.  AIG was bailed out for $180 billion in the 08 crisis because they were fake insureres of liar-loan mortgages with little money in the bank to pay losses.

Wall Streeters are all crooks that belong in jail for fraud and the derivative scam is just one of their rackets.

No wonder 70% of derivatives are interest rate derivatives insuring borrowers from interest rate hikes.  That's a no-brainer since we all know that the Fed can't and won't raise rates much because of the rig and massive debt.

Start calling derivatives what they are FAKE INSURANCE POLICIES.




JailBanksters's picture

And it's still not enough for them

whatisthat's picture

I would observe the derivatives casino or toilet should be flushed...

Silver Savior's picture

I just need to tell myself dont panic. I have a really solid plan if I can follow through with it step by step. Every day I think I am going to run out of time before the reset happens but it all seems to hang on by a thread. I want to mostly be in PMs and crypto. Getting the whole crypto thing figured out and up and running is turning out to be the biggest pain in the ass I have had in a long time.

I want to buy ripple but need to go on yet another exchange. Got to do a bunch of 401k bullshit too. Dont they know people sometimes need their own money? These new loan waiting periods are total bullshit. They are lucky I just dont pull the plug and cashout. Pissed!