Despite controversy surrounding the financial instruments known as derivatives -- and legislation that might finally start to regulate them -- the nation's top five banks are, for now, maintaining their stranglehold on the derivatives market, accounting for 97 percent of the $204.3 trillion in total volume last quarter, the Office of the Comptroller of the Currency reported Friday.
The lobbyists for the nation's biggest banks are fighting ferociously against legislation that would regulate the over-the-counter derivatives market. What is now essentially a market in which traders deal directly with one another would instead be diverted to public exchanges or other central facilities, though major loopholes remain.
Overall, the nation's banks saw an 11 percent increase in their trading revenue last quarter, turning a $5.7 billion profit -- their fourth-best quarter ever.
JPMorgan Chase led the way in the third quarter, making nearly $3.1 billion off its trading and derivatives activity, a 60 percent increase from the previous quarter. The banking behemoth has earned more than $8.1 billion trading thus far this year, already eclipsing its year-end totals for each of the last two years.
Goldman Sachs's profits declined 37 percent to $691 million, due to big losses on its foreign exchange trading, according to the report. Those losses were hedged by profits on interest rate contracts, but they weren't enough to make up for the substantial decrease in overall profits.
Citibank continues to lose money off its trading and derivatives contracts. The partially-taxpayer owned bank lost $211 million last quarter and $238 million in the second quarter, the report shows.
Bank of America made $467 million last quarter, a $650 million swing from its second-quarter loss. Wells Fargo, on the other hand, turned a loss, losing $78 million in the third quarter compared to its $306 million profit during the second quarter.
At Goldman Sachs, trading continues to make up a significant part of the banks' profits. Trading revenue accounts for 59% of Goldman Sachs' overall revenues, according to the report. The firm, which last year became a bank in order to accept TARP money, is the beneficiary of taxpayer-funded guarantees. Goldman Sachs owns a bank; its deposits are guaranteed by the Federal Deposit Insurance Corporation. The firm also has access to the Federal Reserve's cash, just like Main Street commercial banks. And it still has more than $22 billion in taxpayer-guaranteed debt, thanks to an FDIC program instituted last fall.
Financial and economic luminaries like former Federal Reserve Chairman Paul Volcker argue that banks with access to taxpayer cash shouldn't be allowed to also engage in trading activities like the kind the nation's biggest banks engage in every day. Though some movement is afoot in Congress to make this change, Volcker's arguments are largely falling on deaf ears in Washington.
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