Traditional bank rankings based on capital and liquidity may overlook a critical risk factor: derivatives exposure. Adjusting the Bail-in Risk Index (BIRI) to account for this reveals a significant shift in the safety profiles of major global banks.
Institutions like JPMorgan Chase, Deutsche Bank, and BNP Paribas, burdened by massive notional derivatives exposures (ranging from 35 to 55 trillion) and weak collateraliszation, experience a dramatic drop in rankings. This highlights their increased vulnerability to counterparty defaults and collapsing collateral values. Notably, JPMorgan alone holds $55 trillion in derivatives, representing 15% of the global total.
Conversely, Australian (CBA, Westpac) and Singaporean (DBS) banks maintain their top positions due to their conservative approach to derivatives, high collateralisation levels (over 80%), and minimal engagement with high-risk derivative instruments.
This adjusted ranking underscores a clear dichotomy. U.S. and European banks, while dominant players in derivatives markets, carry substantial systemic risks. In contrast, Asia-Pacific lenders prioritise stability through prudent derivatives management.
While UBS and HSBC face penalties for moderate derivatives exposure, their strong counterparty quality and broad geographic diversification bolster their resilience. However, Deutsche Bank’s $45 trillion derivatives portfolio, coupled with junk-rated counterparties and a 40% collateralisation rate, illustrates how long-standing risks can undermine otherwise adequate capital levels.
For investors prioritising safety, banks with low derivatives leverage, strong collateral buffers, and limited exposure to volatile sectors such as energy or speculative corporate debt are the preferred choice.
The crucial insight is that in an environment where derivatives can amplify financial shocks, the concept of “too big to fail” can quickly transform into “too risky to ignore.”
While conventional financial metrics remain important, examining derivatives exposure exposes underlying vulnerabilities, positioning Australian and Singaporean banks as the new safe havens while major players in Wall Street and Europe operate with greater inherent risk.
Global Bank Rankings: Derivatives Credit Risk (Highest to Lowest Risk)
(Lower DRA-BIRI = Higher Risk | Higher DRA-BIRI = Lower Risk)
| Rank | Bank | Country | DRA-BIRI | Key Risk Drivers |
|---|---|---|---|---|
| 1 | UBS | Switzerland | 0.87 | Safest Global Bank: $5T derivatives, 75% collateral, AA counterparties. |
| 2 | Commonwealth Bank | Australia | 0.84 | Safest APAC Bank: $2T derivatives, 80% collateral. |
| 3 | HSBC Hong Kong | Hong Kong | 0.83 | Tied to HSBC’s global strength, China exposure. |
| 4 | DBS | Singapore | 0.82 | Minimal derivatives ($1.5T), 85% collateral. |
| 5 | Westpac | Australia | 0.81 | Low derivatives ($1.8T), strong collateral (80%). |
| 6 | HSBC | UK | 0.81 | $8T derivatives, mixed counterparties (A-BBB). |
| 7 | Barclays | UK | 0.81 | Restructuring, moderate derivatives ($20T). |
| 8 | ING | Netherlands | 0.78 | $150B net credit exposure, A-rated counterparties. |
| 9 | Crédit Agricole | France | 0.75 | EU corporate debt risks, $30T derivatives. |
| 10 | Standard Chartered HK | Hong Kong | 0.75 | China exposure, $55B net credit risk. |
| 11 | JPMorgan Chase | USA | 0.74 | $55T derivatives, 50% collateral, BBB/junk risk. |
| 12 | Citibank Singapore | Singapore | 0.73 | 70% uninsured deposits, low ROE. |
| 13 | Santander | Spain | 0.70 | Latin America exposure, $55B derivatives. |
| 14 | Bank of East Asia | Hong Kong | 0.70 | High NPLs (2.0%), concentrated China focus. |
| 15 | Société Générale | France | 0.68 | Weak profitability (ROE 5.5%), high uninsured deposits. |
| 16 | BNP Paribas | France | 0.63 | $35T derivatives, energy sector exposure. |
| 17 | Deutsche Bank | Germany | 0.57 | Riskiest Bank: $45T derivatives, 40% collateral, junk counterparties. |