[phdp]

It’s largely there to sound scary. While stocks can have their exposure measured based on their face value, derivatives cannot. For example, you could have a 100 million interest rate swap, where you either pay or receive the difference between a floating interest rate and a fixed interest rate depending on their values. You’ll never get close to ever losing or gaining 100 million dollars, and that 100 million is never exchanged, but you still have that much exposure.

To further complicate things, these banks may have hedged their exposure, meaning they may have an equal but opposite interest rate swap. Now they have 200 million of exposure, but no matter how the interest rates have changed, there’s no risk (all of this assumes no counterparty risk, which may or may not be valid, but for now ignore it).