Let’s take a moment and acknowledge the importance and seriousness of that statement.

Investopedia defines a bank holding company as a corporation that owns one or more banks and has controlling interest in them, but does not offer banking services itself.

According to an article by The Wall Street on Parade, the bank holding companies earned $10.2 billion in revenues in the second quarter, which was equal to 101 percent of the trading revenue generated by the federally-insured banks. The federally-insured banks, on the other hand, generated $10.3 billion in revenues.

That has never occurred previously based on the information given by the OCC.

The OCC report offers us with some historical context.

Before the financial crisis of 2008 and the adoption of bank charters by former investment banks Morgan Stanley and Goldman Sachs, the percentage of revenue from trading in banks typically ranged from 80 to 60 percent for consolidated bank holding companies, and between 50 and 30 percent for insured commercial banks in the U.S. Associations and savings banks generally have more limited legal authorities than companies holding products of equity and commodity trading, with revenue trading percentage typically decreasing.

The company holding quarterly Cash Revenue Trading vs bank positions in derivatives equity trading shows an “unprecedented” decrease in the second quarter, while the Office of the Comptroller of Currency (OCC) attempts to highlight this shift by moving the information shown in the company’s federally-insured bank.

Taxpayers in the U.S. Are backstopped by a federally-insured bank-owned company, because they can’t afford to take the risks of holding their money and their life in a bank that is not insured. In the first and second quarters of this year, the majority of credit default swaps, cash positions, and derivative positions that the bank is trading show that they are insured in a federally-insured bank-owned company.

In 1999, there was a sense that the Glass-Steagall Act had served its purpose and something should be done before a similar crisis happened again. However, just 9 years later, the global financial crisis occurred. The article notes that if the Federal Reserve had not provided a $29 trillion bank bailout, another great depression would have occurred. The ultimate purpose of this act was to restore public faith in banks and stop runs on banks, and to ban the combination of commercial banks and investment banks in order to protect the public’s deposits. However, allowing banks to engage in speculative trading on Wall Street ultimately led to further crippling of the economy and the subsequent crash of the stock market, leading to runs on banks. In response to the collapse of the banking system in the 1930s, Congress introduced the Glass-Steagall Act.

Generally, the proportion of trading revenue from banks to the overall trading revenue of consolidated bank holding companies was usually between 60-80% before the global financial crisis.

After the global economic downturn, the typical range for the percentage of trading income derived from banks in relation to the overall trading income of consolidated bank holding companies fell within the range of 30% to 50%.

The current proportion of bank trading revenue to the trading revenue of the consolidated bank holding company is over 100% (101%).

“However, hold on! There’s additional!”.

In this “2022 Quarter Second Activities; and Trading Bank on Report Quarterly” report, we are provided with some enlightening perspective on the condition of these banks based on the information reported by other data published by U.S. Financial companies, U.S. Commercial banks, and U.S. Savings associations, all of which are insured by the OCC.

At the conclusion of the second quarter of 2022, 88.9 percent of the overall notional amounts and 66.0 percent of the net current credit exposure (NCCE) in the banking industry were accounted for by four major commercial banks. A combined total of 1,258 insured commercial banks and savings associations, both national and state-level, disclosed their trading and derivatives activities.

Derivatives are the solution, and remember from earlier that these bank holding firms do not participate in baking operations. Therefore, for those curious about “how a commercial bank’s trading income can surpass that of its holding company?”,

So, let’s examine some recent secondary data, as reported by the OCC.

The following information is stated in the Executive Summary of the report:

In the second quarter of 2022, banks in the United States that are insured and engaged in commercial activities, as well as savings associations, disclosed a trading income of $10.3 billion. This amount was $273.0 million lower (2.6 percent) compared to the preceding quarter, but $2.2 billion higher (26.8 percent) when compared to the same period a year ago.

Credit exposure from derivatives rose in the second quarter of 2022 compared to the first quarter of the same year. The NCCE saw a $17.0 billion increase, marking a 5.5 percent growth, reaching $324.0 billion.

• The notional amounts of derivatives decreased by $5.5 trillion, or 2.7 percent, to $194.8 trillion in the second quarter of 2022.

Interest rate instruments remained the primary focus of derivative contracts, representing $142.9 trillion or 73.3 percent of the overall notional values of derivatives.

Calculating leverage by dividing “total derivatives” by “total assets”, I have compiled some of the most significant positions into Excel for convenience, in order to demonstrate leverage and provide some paraphrasing. When examining this OCC report, tables are presented that display notional credit exposure and derivative contracts for several major banks.

The reported total derivatives of SMBC AMERICAS HOLDINGS, INC. Amount to $9,462,366, while their reported total assets amount to $28,912. The notional amounts of derivative contracts of the holding company indicate a leverage of 327.28%, making it the most notable information. Many of these commercial banks engage in activities such as excessive leverage, credit exposure, and derivative contracts. The period before the Global Financial Crisis (GFC) had a higher percentage of bank trading revenue to consolidated bank holding company trading revenue compared to the present.

Let’s expand upon the aforementioned details by applying the identical equation as the report, multiplying the derivative contract and credit exposure figures stated in these tables by 1,000, since they are denoted as “in millions”.

SMBC AMERICAS HOLDINGS, INC. Disclosed their overall assets as $28,912, while their total derivatives are stated as $9,462,366.

$28,912 multiplied by 1,000 equals $28,912,000, which represents the total assets.

$9,462,366 multiplied by 1,000 equals $9,462,366,000, resulting in the total derivatives.

$9,462,366,000 divided by $28,912,000 equals a leverage of 327.38%.

It is not surprising when considering the state of the banking industry itself, and more specifically, the present situation of not just the global economy as a whole, but also the current status of certain commercial banks and their parent companies.