Where’s The Derivatives Exposure?

Here’s another blow to the meme that the derivatives market is efficient at dispersing risk. It comes from a new study by Fitch.

The report indicates that derivatives use by companies is fairly widespread but that the concentration of the risk is overwhelmingly found to rest with just five banks: JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley and Citibank. In fact, those five hold 80% of the derivative assets and liabilities held on the books of 100 companies.

There’s no way to look past this sort of concentration of risk — the notional amount of derivatives exposure is $296 trillion. I’m of the position that there is nothing inherently evil about derivatives and that they do improve the functioning of the credit markets, but no matter what the value of a tool and no matter how stable it may have been historically it still has to be controlled.

more: here

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