An interesting and disturbing piece of news just came across my radar.
The Office of the Currency Comptroller’s most recent report of the total amount of derivatives held at the Big 4 banks shows that Citibank has surpassed JP Morgan, Goldman Sachs and Bank of America with $70 trillion in holdings, making it the single biggest holder of derivatives in the U.S. Looks like in this third quarter, the part of Citi with deposits insured by FDIC, went on a derivatives shopping binge, purchasing over $9 trillion in notional amount of derivatives!!
Isn’t it curious that Citibank is increasing its total derivative holdings as other banks are derisking their balance sheet? Is it just coincidence that it was Citigroup who just wrote the provision included in the year end omnibus funding bill that repealed the Dodd-Frank prohibition against funding risky derivatives with FDIC-insured deposits? And has anyone else noticed that this, once again, surely puts taxpayers on the hook for even greater FDIC bailouts if the derivatives go south?
Some folks are asking if Citi is the next AIG, which became the world’s biggest derivatives player just before that market to blow blew up in 2008. Have we forgotten that if AIG had not been bailed out $180 billion of taxpayer money they would have taken down many of the banks that are too big to fail, and perhaps the rest of most of the global financial system!
We need to ask- why is Citi adding to its derivatives exposure? Coincidence or deliberate strategy? Is there more to the recent law change pushed through by Citi which now allows it more freedom to take even greater risks with our money?