The New OCC Report
by Ted Butler, Silver Seek:
On Tuesday, the new Quarterly Derivatives Report from the Office of the Comptroller of the Currency was released, showing the over-the-counter derivatives positions for US banks as of March 31, 2022. This report excludes listed or exchange-traded derivatives contracts, such as COMEX futures and options contracts and also excludes OTC derivatives contracts held by non-US banks.
Because the OCC reports the US banks’ derivatives holdings by total notional value and does not include any detailed breakdown as to whether the banks’ positions are net long or short (as is available in the Commitments of Traders (COT) report), even though I’ve reviewed the OCC report for years, there was never much that I could glean from it – other than the names of the US banks dominating the OTC derivatives market (something not available in the COT reports).
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All that changed, however, in April 2021, when the OCC report for positions held as of Dec 31, 2020 was released and indicated, out of nowhere, that Bank of America emerged as a major player in OTC silver derivatives, as it held more than $8 billion in such silver derivatives or roughly, 300 million oz, whereas a year or so earlier, Bank of America held virtually no such derivatives. Moreover, BofA had never been a major player in such derivatives and had no known previous experience in precious metals. In an article at the time, I attributed BofA’s massive increase in silver derivatives as being the result of borrowing 300 million oz of silver from interests associated with JPMorgan.
Subsequently, since the December 2020 OCC report, Bank of America’s precious metals position (mostly silver) continued to expand massively, to the point where at yearend 2021, it held $27.32 billion of such derivatives, the equivalent of more than one billion oz of silver. Let me repeat that, over little more than 2 years, Bank of America’s silver derivatives position had grown from virtually zero to $27 billion, the equivalent of more than one billion oz of silver. Because the growth and size of BofA’s position was unprecedented and posed, in my view, a genuine risk to the bank and the financial system should silver prices rise dramatically (BofA was essentially short that much silver), I continued to sound the alarm, both to the regulators responsible (the OCC, CFTC and the SEC) and publicly.
I did receive a response from the OCC when I called upon my local congressman to ask the OCC about the Bank of America silver derivatives position, which I posted publicly. In typical government-speak when an issue is raised that is valid and serious, the OCC’s response was, essentially, a non-denial confirmation which confirmed my concerns.
The new OCC report published Tuesday sheds important new light on this matter. First, I must point out that the new report, for positions held as March 31, 2022, now includes gold in the precious metals category (in addition to silver, platinum and palladium). As a reminder, gold, the largest precious metals market, was taken out of the OCC precious metals category back around 2016 and put into the much larger Foreign Exchange category, which made gold holdings opaque, but which made (inadvertently, I believe) silver holdings, suddenly, quite transparent.
Now that the OCC has decided to put gold back into the precious metals category, my first thoughts were that the switch back would make silver derivatives holdings, once again, opaque and hard to decipher. Further, I thought that my complaints might have had something to do with the OCC’s reversal to now include gold back into the precious metals category. But, I’m happy to report, that at least in the new report, there is actually greater clarity when it comes to Bank of America’s silver derivatives position – which is beyond ironic.
With the inclusion of gold back into the precious metals category, the OTC precious metals positions held by JPMorgan and Citibank, increased by 10-fold and 15-fold respectively, from the prior quarter, as would be expected and verifying that both of these banks are major players in gold OTC derivatives. Shockingly, the precious metals derivatives positions of the two other US banks listed in the OCC report, Bank of America and Goldman Sachs, increased only modestly.
In the case of Bank of America – still the main focus of my concerns – there was no real increase at all, since the price of silver as of March 31, 2022 was $25.10, versus the $23.35 price as of Dec 31, 2021, or 7.5% higher. Not coincidently, the Bank of America precious metals position increased by 7.5%, from $27.32 billion on Dec 31 to $29.44 billion on March 31, 2022, likely meaning, unlike JPM and Citi, BofA (and Goldman Sachs) held no gold derivative. Here are the two reports for you to compare (look at table 21 on page 26 of each report) –