According to a report from one of the regulators of national banks, the Office of the Comptroller of the Currency, as of September 30, 2015, insured U.S. commercial banks and savings associations had exposure to $192.2 trillion notional (face amount) of derivatives. (Yes, that’s trillion with a “t”.) The report goes on to terrify with the revelation that only four banks hold 90.8 percent of all derivatives: Citigroup, JPMorgan Chase, Goldman Sachs and Bank of America.
Who and what exactly is Morgan Stanley and why should its derivatives concern us? Morgan Stanley was created in 1935 after the Glass-Steagall Act barred JPMorgan from holding insured deposits while simultaneously operating an investment bank to engage in underwriting and speculating in stocks. The massive losses experienced by banks after the 1929 crash was blamed on reckless speculations in the stock market and a leading cause of the Great Depression. Prior to the Glass-Steagall Act in 1933, there was no FDIC insurance on bank deposits, thus millions of people lost everything that had been in the failed banks as a result of the crash. JPMorgan chose to remain a commercial bank accepting newly insured deposits while other partners left the firm to form the investment bank, Morgan Stanley.
Wall Street On Parade decided to see if Wall Street’s regulators have become more obliging and transparent with the public’s right to know following the greatest Wall Street collapse since the Great Depression. We emailed the SEC and inquired as to why it was allowing a bank holding millions of brokerage accounts for moms and pops across America to simultaneously be housing $31 trillion in derivatives. We received an email back from Judith Burns in the SEC’s Public Affairs office with this: “Decline comment, thanks.”