These relatively small loss figures reflect both the current healthy economic environment and the generally high credit quality of counterparties and end-users with whom banks presently engage in derivatives transactions, as well as the increased use of collateral. The Call Report data reflect the significant differences in business strategies among the banks. The preponderance of trading activities, including both customer transactions and proprietary positions, is confined to the very largest banks. The banks with the 25 largest derivatives portfolios hold 94.1 percent of the contracts for trading purposes, primarily customer service transactions, while the remaining 5.9 percent are held for their own risk management needs. The trading contracts of these banks represent 92.4 percent of all notional values in the commercial banking system.
Smaller banks tend to limit their use of derivatives to risk management purposes.
Banks below the top 25 hold 70. 9 percent of their contracts for purposes other than trading. Note that while gross fair value data are very useful in depicting more meaningful market risk exposure, users must be cautioned that these figures do not include the results of cash positions in trading portfolios. Similarly, the data are reported on a legal entity basis and consequently do not reflect the effects of positions in portfolios of affiliates. For example, these figures do not reflect the impact of off-setting positions on the balance sheet.