Derivatives usage for banking industry: evidence from the European markets

Chuang-Chang Chang (), Keng-Yu Ho () and Yu-Jen Hsiao ()
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Chuang-Chang Chang: National Central University
Keng-Yu Ho: National Taiwan University
Yu-Jen Hsiao: Taipei Medical University

Review of Quantitative Finance and Accounting, 2018, vol. 51, issue 4, No 2, 941 pages

Abstract: Abstract This study investigates the determinants and effects of the use of derivatives in the banking industry, which mainly uses derivatives for trading. Our empirical evidence suggests that banks that use derivatives are associated with higher levels of profitability, lower net interest margin, and more inflows into transaction deposits. We also find that banks’ profitability is significantly and positively related the use of foreign exchange and interest rate derivatives and that banks with high deposits and liquidity are more likely to use foreign exchange derivatives. Finally, we show that derivatives usage increases bank risk and bank value. Our results are robustness to the potential endogeneity issue.

Keywords: Bank; Derivatives; European markets (search for similar items in EconPapers)
JEL-codes: G15 G20 G21 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-017-0692-3

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