Nine large institutions accounted for the vast majority of trading and derivatives activities. The top nine banks accounted for 86 percent of that amount. The composition and types of contracts in bank derivatives portfolios remain relatively unchanged since 1991. During the third quarter, increases in foreign exchange, commodity and equity contracts slightly offset a small decline in interest rate contracts. This decrease in exposure largely resulted from changes in currency and interest rates and recognition of continuing benefits from bilateral netting.
Banks continue to maintain relatively balanced derivatives trading portfolios.
Market risk can be gauged by measuring the positive and negative fair values of derivatives portfolios. A portfolio has positive fair value if liquidation today would result in net income to the bank. A portfolio has negative fair value if liquidation today would result in a net loss to the bank. Relatively balanced exposures mean that the value of positions where the bank could have a gain does not significantly differ from the value of positions where the bank could have a loss. Depreciation for both types of securities continued to decline during the quarter.