The use of financial derivatives and risks of U.S. bank holding companies

Shaofang Li and Matej Marinč

International Review of Financial Analysis, 2014, vol. 35, issue C, 46-71

Abstract: This article examines the impact of financial derivatives on systematic risk of publicly listed U.S. bank holding companies (BHCs) from 1997 to 2012. We find that the use of financial derivatives is positively and significantly related to BHCs' systematic risk exposures. Higher use of interest rate derivatives, exchange rate derivatives, and credit derivatives corresponds to greater systematic interest rate risk, exchange rate risk, and credit risk. The positive relationship between derivatives and risks persists for derivatives for trading as well as for derivatives for hedging. We also analyze the role of BHCs' size and capital and the impact of the global financial crisis on the relationship between derivatives and risks.

Keywords: Financial derivatives; Interest rate derivatives; Exchange rate derivatives; Credit derivatives; Systematic risk (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:35:y:2014:i:c:p:46-71

DOI: 10.1016/j.irfa.2014.07.007

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