Derivatives activity in the US banking system continues to be dominated by a few large institutions, but credit risk in bank trading activities fell again in Q309, according to a report by the Office of the Comptroller of the Currency (OCC). Net current credit exposure, which OCC uses to measure credit risk in trading activity, declined 13% to $484bn in the quarter. Credit derivatives fell 3% in Q309 to $13trn. Credit derivative outstandings fell 21% off a Q108 peak of $16.4trn. They fell 19% in 2009 alone. The OCC’s report, based on information provided by insured US commercial banks, trust companies and US financial holding companies (and available to download here), found that the notional value of derivatives held by US commercial banks rose $804bn in Q309 – or 0.4% – to $204.3trn. Derivative contracts remained concentrated in interest rate products, which accounted for 84% of total derivative notional values. Credit default swaps (CDS) accounted for 98% of total credit derivatives, representing the dominant p0roduct. As a sign the financial market has returned to a more normal environment, the OCC said banks reported trading revenues 11% greater than the previous quarter — reaching $5.7bn in Q309. “As noted in previous quarterly reports, changes in the value of derivatives payables and receivables have had an impact on trading revenues,” the OCC said in its report. “During the third quarter, amid signs that the US economy was stabilizing and capital market conditions improving, credit spreads narrowed.” OCC added: “The net effect of changes to the fair values of derivatives payables and receivables, which are part of trading revenues, was positive during the third quarter, but less significant than in the second quarter.” Write to Diana Golobay.