US Banks See 15% Drop in Trading Revenue in Q3

U.S. commercial banks and savings associations reported trading revenue of $6.8 billion in the third quarter this year, a 15.5% decrease, according to stats from the Office of the Comptroller of the Currency (OCC).

The OCC Quarterly Report on Bank Trading and Derivatives Activities showed that trading revenue in Q3 was down 1.2% year over year compared to $6.9 billion reported in Q3 2020.

The OCC said there were 1,357 insured U.S. national and state commercial banks and savings associations that reported trading and derivatives activities at the end of the third quarter.

But a small amount of bigger financial institutions (FIs) dominated the trading and derivatives field, according to the report. Four large banks made up 89.3% of the total banking industry estimated amounts and 78.1% of the net current credit exposure.

The OCC attributed the decrease in trading revenue to the loss in revenue from interest rate and equity trading instruments.

Before the 2008 financial crisis, trading revenue at banks was around 60% to 80% of the consolidated bank holding company (BHC) trading revenue, which the OCC said in the report is a good way to measure trading revenue. Since then, bank charters were adopted, and the percentage of bank trading revenue to consolidated BHC trading revenue has dropped to 30% to 50% on average.

In the third quarter, BHC was $14.2 billion, a 39.7% decrease from the previous quarter, the report showed.

The OCC said the decline “reflects the significant amount of trading activity by the former investment banks that, while included in BHC results, remains outside insured commercial banks.”

In other news, banks have been making changes to their policies for overdraft charges. Overdraft fees are likely to rise during the holiday season, particularly as debit transactions linked to checking accounts bulk up spending.

Read more: Eliminating Overdraft Fees Isn’t Easy Fix for Banks, Customers