Correction: CEC release wrong on Australian banks' derivatives exposure—latest figures far worse!

The CEC last week discovered a factual error (now corrected) in its press release questioning Commbank's $9 billion profit ; however, the discovery revealed the frightening fact that Australia's banks have recently embarked on an unprecedented bender of derivatives gambling.

The press release originally stated Australia's banks' total combined off-balance sheet derivatives obligations as $28 trillion, and made the point that this figure represented a doubling since the GFC in the final quarter of 2008; $28 trillion was rounded up from $27.7 trillion which was correct as of the December quarter 2014. After the release was issued, a researcher discovered that the Reserve Bank had finally released the figures for the March quarter of 2015—there is always a lengthy delay for the release of the figures—which showed a significant increase in derivatives exposure.

But what an increase! What the RBA calls "total off-balance sheet business", aka derivatives exposure, of Australia's banks skyrocketed in just one quarter by over $4.6 trillion to $32.3 trillion. To put that quarterly increase into perspective, compare it with the previous quarters: Dec 2014 - $27.7tr; Sep 2014 - $27.0tr; Jun 2014 - $25.2tr; Mar 2014 - $24.4tr; Dec 2013 - $23.4tr.

Such an explosion in the Australian banks' derivatives gambling in one quarter is highly alarming. It smells of a gambling addict "doubling down"—desperate to redeem their losses with another and another throw of the dice. It also blows apart the fraudulent argument, made to the CEC and a visiting Japanese derivatives expert by Treasurer Joe Hockey's chief economist Tony Pearson in March 2014, that the banks' derivatives trading is "normal hedging"—what on earth are Australia's banks involved in that requires them to increase their "hedging" on this scale?

As the CEC stated in its release, the banks must be investigated by the equivalent of the US Pecora Commission in 1933, which laid bare the criminality of Wall Street and paved the way for Franklin Roosevelt's successful banking reforms, including the most successful of all—Glass-Steagall, the forced separation of all commercial banking that services the people in the daily economy, from precisely this kind of highly dangerous bank gambling. It's time for those in Abbott's Coalition government who know the banks must be held to account, but who've hitherto been restrained by the Liberals from taking them on, such as Senator John Williams, to insist on a no-holds-barred investigation before the banks collapse under their own unpayable gambling debts, and pull down the rest of the Australian economy with them.

(Above) Australian Banks' Derivatives, June 2009-March 2015.

(Above) Australian Banks' Derivatives, June 1989-March 2015.