Ellen Brown: The Looming Quadrillion Dollar Derivatives Tsunami

March 21, 2023

Ellen Brown: The Looming Quadrillion Dollar Derivatives Tsunami

By Investment Watch Blog

via scheerpost:

Technically, the cutoff for SIFIs is $250 billion in assets. However, the reason they are called “systemically important” is not their asset size but the fact that their failure could bring down the whole financial system. That designation comes chiefly from their exposure to derivatives, the global casino that is so highly interconnected that it is a “house of cards.” Pull out one card and the whole house collapses. SVB held $27.7 billion in derivatives, no small sum, but it is only .05% of the $55,387 billion ($55.387 trillion) held by JPMorgan, the largest U.S. derivatives bank.

The global derivatives market is a $2+ QUADRILLION (2,000+ TRILLION) ticking time-bomb. When banks fail, derivatives won't just unwind in an orderly fashion. Few people understand this.

These are some of the top U.S. banks ranked by derivatives exposure (double-digit TRILLIONs). pic.twitter.com/cS23fazqZH

— Gabor Gurbacs (@gaborgurbacs) March 19, 2023

The Bank of International Settlements estimates that there is a combined $52+ Trillion off balance sheet Dollar-denominated debt among non-banks outside of the U.S. and non-U.S. banks. In case of non-orderly derivatives wind-downs this could become extremely problematic. pic.twitter.com/x5IhFCnUsX

— Gabor Gurbacs (@gaborgurbacs) March 19, 2023

Credit Suisse’s $39 Trillion Derivative Debt Poses Significant Threat to US Financial System.

The U.S. Treasury Secretary, Janet Yellen, is under a lot of pressure due to the deteriorating condition of Credit Suisse, a Swiss banking giant. Under the Dodd-Frank financial reform legislation of 2010, Yellen was given increased powers to oversee financial stability in the U.S. banking system. The legislation made Yellen the Chair of the newly created Financial Stability Oversight Council (F-SOC), whose meetings include the heads of all of the federal agencies that supervise banks and trading on Wall Street. It is Yellen’s authorization that would be required before the Federal Reserve could create any more emergency bailout programs for mega banks.

Recently, the US Treasury was reviewing US banks exposed to Credit Suisse, looking into how many billions of dollars of underwater derivatives US banks were on the hook for as a counterparty to Credit Suisse, and U.S. banks exposure to Credit Suisse’s other major counterparties that U.S. banks do business with.

Credit Suisse was making headlines for two years, and serious problems at Credit Suisse have raised alarm bells in the US financial system. Credit Suisse is a global, systemically significant, too-big-to-fail bank that operates in the US and is deeply interconnected throughout the global financial system. Its failure could have widespread and largely unknown repercussions, which is why the US financial system and economy need to be adequately protected.

The recent revelations about Credit Suisse’s deteriorating state have raised concerns about contagion risks in the banking industry, particularly in light of the staggering amount of secret derivative debt being held by foreign banks. According to a report by the Bank for International Settlement, this unreported exposure is 10 times greater than their capital, with an estimated $39 trillion of dollar debt held off balance sheets.

This poses potential threats to dollar swap lines and with a significant portion of derivative trades still not being centrally cleared, a layer of opacity is added to an already unaccountable system. The quarterly derivatives report from the Office of the Comptroller of the Currency found that four US mega banks held 88.6% of all notional amounts of derivatives in the US banking system, with a total notional amount of $195 trillion.