Derivatives: have we let our guard down?

We must not lose sight of this potentially critical risk to the financial system, at a time when sovereign credit risk is impacting banks in Europe, mortgage related liabilities still affecting US banks, and declines in world economic growth risks further debt default and asset price declines.  It is at these points in time that counterparty and hence derivative risks sharpen.

A recent report by the US Comptroller of the Currency (Thanks to Zero Hedge for bringing this report to my attention) stated that “Five large commercial banks represent 96% of the total banking industry notional amounts and 86% of industry net current credit exposure”.  

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