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Wall Street’s Most Dangerous Derivative Secrets Are Hiding in Plain Sight in a Regulator’s Report
by Pam Martens and Russ Martens Wall Street on Parade
On March 17, 2022, the Federal Reserve began its interest rate hiking cycle, which has, thus far, evolved into 10 consecutive rate hikes, making it the fastest rate increases in 40 years. The Fed’s actions to tame inflation included four consecutive interest rate hikes of an aggressive 75 basis point hike (three quarters of one percent) on June 16, July 28, September 22, and November 3 of last year.
At that point, every trading veteran on Wall Street was scratching their head and asking themselves the same question: why aren’t we hearing about interest rate derivatives blowing up and taking down either a U.S. mega bank or its counterparty on the wrong side of the trade?
According to the quarterly derivative reports released by the Office of the Comptroller of the Currency (OCC), the regulator of national banks, as of December 31, 2021, four mega commercial banks held $118 trillion notional (face amount) of interest rate derivatives. That $118 trillion represented an astounding 91percent of all interest rate derivatives held by all commercial banks in the United States.