The Black Hole?

Deep in the article Banks lose $9.2B in derivatives trading in 4Q one finds the following:

The total value of derivatives at commercial banks jumped 14 percent to $200.4 trillion as financial firms changed their operating status to commercial banks after the collapse of Lehman in an effort to stay in business. Among those changing their status were investment banking giants Goldman Sachs Group Inc. and Morgan Stanley.


$220.4 Trillion? And that is just the amount held by commerical banks? To put that into perspective the total global GDP for 2008 was $69.49 Trillion according to the CIA Factbook (scroll down to the section entitled 'Economy World').

Now before one thinks the sky is falling, one should note a key fact is missing from the quotation above--the $200 trillion represents the "notional" value of the derivatives and not the total liability. The actually amount that the banks are on the hook for can be far less than the notional value. For example, last year a $454.5 trillion notional value of over the counter derivitives translated into a $2.3 trillion gross credit exposure (source).

Still, the mere fact that there is in effect an unregulated "shadow" banking system tossing around even notional numbers like this should give one pause until there is a general understanding of what is really at risk here and who the players are.