01 October 2011

An Important Addition and Clarification to the OCC Report Discussion

As I wanted to look into the gold and silver situation, and the concentrations there amongst the Anglo-Americans I left out an important fact about derivatives in general.

The US OCC report does include not only commercial banks and trusts with US subsidiaries, but also "Bank Holding Companies."

The bank holding company report, while shown at a high level, is not included in the breakdowns of positions in gold and silver, so it is not correct to assume that these fellows do not have positions there. Rob Kirby informs me that this is because the OCC has regulatory oversight for commerical banks and trust, but the Fed has authority over the holding companies.

As you can see from the attached below, Morgan Stanley is a huge player in the derivatives market, but at the Holding Company level. I am privately informed that they are also major players in the gold and silver derivatives trade.

This to me is important, since their CDS are recently amongst the weakest in the US banks, as Bloomberg has been recently emphasizing, and so they probably present some of the highest counter party risk amongst the current crop of players. As the OCC does not break down positions held at the holding company level, even though they claim to include off balance sheet items, it presents an incomplete picture.

Perhaps under regulatory reform, the Fed will begin to disclose more information to the OCC, and to the public, as to the true health and holdings of the Bank Holding Companies. The difference in the two categories with respect to derivatives positions is roughly $83 trillion.

I neglected completely to mention this and even contrasted Morgan Stanley with Goldman at the commercial bank level.

I ask your indulgence for this omission.