Via Demonocracy, we see this basic take on derivatives:

A derivative is a legal bet (contract) that derives its value from another asset, such as the future or current value of oil, government bonds or anything else. Ex- A derivative buys you the option (but not obligation) to buy oil in 6 months for today’s price/any agreed price, hoping that oil will cost more in future. (I’ll bet you it’ll cost more in 6 months). Derivative can also be used as insurance, betting that a loan will or won’t default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative.”

Where things go mad is when we start to conceptualize the amount of exposure the major banks (and through them you the taxpayer) have. The scale of derivatives these days has becomes so immense as to be nearly unimaginable.

So Demonocracy helps us along with this giant infographic of the 9 biggest banks by their Derivative exposure, both individually and collectively.

Here for example is State Street Bank — note the $1.39 trillion dollar pile of derivatives next to their HQ — as well as Goldman Sachs and their $44.2 trillion dollar derivative pile:


click for giant graphic of largest banks and their derivative exposure


Compare that with Goldman Sachs




Category: Derivatives, Digital Media, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “9 Biggest Banks = $228.72 Trillion in Derivative Exposure”

  1. Moe says:

    Have we not seen this movie before as well?

  2. ex1 says:

    please, this kind of journalism discredits your entire blog.

  3. biscuits says:

    Why do the taxpayers have exposure? Are you assuming the next time the Too Bigs hit the wall we will bail them out again? TARP 2? Maybe the bondholders will finally take the hit instead.

  4. louiswi says:

    I for one need a little help here with this one. Is this a good thing or a bad thing or meaningless thing? It sounds ominous but of course that doesn’t mean anything. Seriously, a little help here.

  5. Non Sequor says:

    Where are these crazy multitrillion dollar numbers coming from? It can’t be the market value of the derivatives written. Are they coming up with these numbers by just adding up strike prices? That’s the only way I can think of that they can get numbers this large. If so, that’s pants-on-head retarded.

  6. NoKidding says:

    I sorta agree with ex1 on this.

    To say there is $228.72 Trillion in Derivative Exposure might be theoretically correct, but I believe it is impossible for anything remotely close to that to come do.

    If they are doing it right, they have a put-option equivalent for each call-option equivalent out there. That cuts the practical exposure in half. Then there’s the idea that a large portion of the bets are against each other, which drops net exposure significantly. Then there’s the question of reasonable valuation bounds – zero to infinity are possible but unlikely.

  7. Frilton Miedman says:

    Screw Dodd-Frank, reinstate Glass-Steagall, that infographic is terrifying.

    Just thinking back to Neocon references about “get rid of big government regulation” – compared to that, government is puny, ridiculously ill-equipped to deal with that monstrosity and replete with officials, politicians and regulators that are powerless to confront the mind blowing buying power.

    Defy the banks and your career is over.

  8. PeterR says:

    Thanks once again Barry for an incredible site, and this heads up, which is just the tip of the “House of Cards” Titanic iceberg.

    Link to here posted.

  9. Petey Wheatstraw says:

    There’s a derivative for that.

  10. NoKidding says:

    FM: Just thinking back to Neocon references about “get rid of big government regulation”

    Its only a problem if you bail out the banks. Your brother-in-law can be a bad gambler, its only your problem if you lend him money. Managed bankruptcy would make all of this zombie insolvency clean again. Same with Greece, portugal, Spain, France, Japan andthe USA.

  11. super_trooper says:

    How does this compare to other international banks? Is this the new normal for all banks around the world?

  12. Petey Wheatstraw says:

    Non Sequor:

    ex1 Says:

    “please, this kind of journalism discredits your entire blog.”

    How so? Is there some fact you know that would counter the article, or is this simply an opinion based on nothing but a gut feeling?

  13. PeterR says:

    PS — and perhaps a reply to Petey Wheatstraw:

    What is under the “Fail Safe” “Last Ditch” derivatives, and the ones below these?

    What is below below below below below ………… [you get the idea]

    The model of a Black Hole comes to mind.

    This might make the Gold Standard look a bit naive?

  14. Futuredome says:

    That is quotational derivitives. Not real cash. The real cash is 4-5 trillion, which is still plenty bad.

  15. Petey Wheatstraw says:

    Global Domestic product is roughly $65T.

    Good thing we’ve got fiat currency.

    Peter R:

    Can’t vouch for the numbers, but here’s gold vs. Major currency(ies) in circulation (scroll down for a graph of all):

  16. Moss says:

    The banksters rule except when it blows up.. then the politicians and bureaucratic financial apparatus find reasons to save ‘the economy’.

  17. Petey Wheatstraw says:


    WTF is “real cash” nowadays, anyway?

    If I’m understanding correctly, you’re saying that in a worst-case scenario, the maximum loss or gain from the collapse or successful settlement of derivatives is $ 4-5T (or is exposure only to the downside)?

    Also, seems we’ve got quantity fatigue creep. We now throw the term “Trillions” around as if it were another word for Billions.

  18. Frilton Miedman says:

    NoKidding Says:
    April 23rd, 2012 at 3:54 pm
    “FM: Just thinking back to Neocon references about “get rid of big government regulation”

    Its only a problem if you bail out the banks. Your brother-in-law can be a bad gambler, its only your problem if you lend him money. Managed bankruptcy would make all of this zombie insolvency clean again. Same with Greece, portugal, Spain, France, Japan andthe USA.”


    I’m surprised no one else jumped on this.

    The derivatives displayed as cash pallets cover everything, literally, grains, energy, commercial paper (jobs), materials, sovereign debt, real estate – EVERYTHING.

    When you go shopping and happen to notice taco shells, pork chops or bread is suddenly 3X more expensive, yup, it’s in those stacks of pallets.

    Gasoline, the electric bill, lumber for that remodel you might do, the 10th anniversary golden necklace for your wife….all of it is traded in derivatives.

    This is NOT your cousin pissing away his own money and asking you for more, this is your cousin using a debit card linked to your account…and you have absolutely NO say in it.

  19. PeterR says:

    Petey W –

    Thanks, but what is below below below below all the graphs and your perception of things?

    PS — The article only purports to apply to the top 9 banks, and NOTHING ELSE! Given that derivative exposure is basically hidden from view, . . . . . . .

  20. NoKidding says:

    FM: “and you have absolutely NO say in it.”

    Its about eight bucks a trade. If you think something’s going to be “3X more expensive” you can be on the winning side. Thats the whole point. If you bet for 5 dollar bread because the FRB is creating food infltion and I bet on 1 dollar bread because the economy is going into deflationary recession, our brokers both acrue offsetting exposure and pocket $16 in revenue. If we use the same broker, the bet is impersonally between you and me.

    The problem is when these institutions take big bets themselves with unbalanced positions in excess of their reserves. In that case they ARE my cousin pissing away his own money and asking my congressman for more. I want my congressman to grow some testicles and say NO.

  21. Petey Wheatstraw says:

    Peter R:

    I don’t know if anyone could honestly unravel it all. Chaos theory would seem to apply. Being that it’s gambling of the kind that could bankrupt the nation, I guess the taxpayer is below it all.

  22. ZedLoch says:


  23. Frilton Miedman says:

    I salute Bart Chilton for putting his career on the line and bringing this problem into the light of day.

    I have a suspicion CFTC position limits will address this to a degree, gradually as each side of a trade deleverages the overall derivative size diminishes…I’m not asserting it’s the entire solution, but a start.

    Such massive amounts of power a single entity, or colluding entities, have over entire sectors, softs, energy and commodities is mind numbing.

    I personally believe this power was used to initiate the sub-prime defaults in late 2008, pumping RBOB & materal prices to constrict disposable incomes and allow these banks to rake in profits on the short sides of trades.

    I don’t call that a “free market”, to promote banking deregulation as “free market capitalism” is like the founding fathers changing their minds at the Boston Tea Party for fear of impinging on King George III’s “personal liberty”.

  24. PeterR says:

    Petey W —

    Yup I think you got it.

    And “Chaos” as support is worth?

  25. louis says:

    Come on , What is the problem, We know how to handle these now.

  26. biscuits says:

    Not before the bank bondholders and shareholders are wiped out , I guess.

    “Being that it’s gambling of the kind that could bankrupt the nation, I guess the taxpayer is below it all.”

  27. a guy called john says:

    Turns out gov’t is keeping its books like business after all.

  28. socaljoe says:

    Notional exposure becomes net exposure if your counterparty fails.

    Can’t help wondering if this is the way our 40 year experiment with unbacked paper money comes to an end.

  29. victor says:

    I agree with Nassim Taleb who urges that banks be treated as utilities forbidden to take potentially lethal risks, while hedge funds and other unregulated entities should be able to do what they want.

  30. lovemarket says:

    People still circulate incorrect information even on so called professional blogs. The huge numbers are just notionals, not exposures.
    Not only that, they are not aggregated in a sense that long and short should cancel each other.

    This comment is also misinformed – “Notional exposure becomes net exposure if your counterparty fails.”

    If counterparty defaults, the value of the derivative which is only a fraction of the notional, if it is positive to you, is lost. And the expected amount of such loss is called exposure.