Savings and Loan Capital and the Use of Interest Rate Swaps

David Vang

The American Economist, 1992, vol. 36, issue 2, 50-57

Abstract: This paper models the relationship between interest rate swaps and capital in savings and loan associations. The interest rate swap is a way in which financial institutions exchange the flexible rate on their liabilities with a fixed interest rate to hedge themselves from interest rate risk, and therefore reduce the need for a capital cushion. The empirical evidence, however, shows that a small capital cushion reduces the firm's possibility of using interest rate swaps because no partner is willing to engage in a rate swapping contract with a firm that does not have adequate capital and soundness.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:sae:amerec:v:36:y:1992:i:2:p:50-57

DOI: 10.1177/056943459203600206

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