The New York Times reports:
In 2009, Citibank, Citigroup's main banking subsidiary, had $32 trillion in derivatives, according to regulatory filings. That figure more than doubled, to $70 trillion, in the third quarter of 2014.
"It's a little bit of a head scratcher," Mike Mayo, a bank analyst at the brokerage and investment group CLSA, said. "Why is this the best use of Citi's capital?" Over the same five-year period, derivatives in JPMorgan's main banking unit declined by 17 percent, to $65 trillion. (The derivatives holdings are stated using their notional value, an industry measure that does not reflect the actual amount that the banks could lose.)
Citigroup has also flexed its muscles behind the scenes to protect its derivatives business from certain new rules. The bank's lobbyists helped draft a bill that gutted a crucial provision of the Dodd-Frank financial overhaul law that aimed to withdraw taxpayer support from some types of derivatives. The bill recently became law.
Ms. Romero-Apsilos, the Citigroup spokeswoman, said that the increases in derivatives had been "gradual" and "risk managed," adding that the higher totals were for derivatives linked to interest rates and currencies, not those linked to the creditworthiness of borrowers. She also noted that Citigroup's derivatives were increasingly going through central clearinghouses, which back trades and are meant to prevent problems in one bank's derivatives business from spreading to the wider financial system.
If the "notional value" of the derivatives doesn't mean much, why is its reporting required? And if it is a meaningful number, then how could anyone at Citi — or its regulators — possibly have a handle on $70 trillion worth?
