Economics at your fingertips  

Diversifying away risks through derivatives: an analysis of the Italian banking system

Luigi Infante, Stefano Piermattei, Raffaele Santioni () and Bianca Sorvillo
Additional contact information
Bianca Sorvillo: Bank of Italy

Economia Politica: Journal of Analytical and Institutional Economics, 2020, vol. 37, issue 2, No 10, 657 pages

Abstract: Abstract The derivatives market has experienced quick growth internationally in the last two decades. Banks decide to participate in the derivatives market either to hedge against unexpected movements in economic variables or for trading and broker–dealer activities. This paper analyses the determinants of Italian banks’ use of derivatives over a long time horizon (2003–2017) by using quarterly Bank of Italy supervisory data. We find that size and being part of a banking group positively affect the banks’ use of derivatives. Moreover, these banks mainly employ derivatives for hedging purposes, especially to hedge against interest rate and credit risks. Finally, derivatives represent a hedging alternative to capital and liquidity, while dealers behave differently when involved in the trading activity. We also take some characteristics that delineate the bank’s business model into account. For example, lower dependence on retail deposits or higher exposure to interbank funding are positively associated with the use of derivatives. Finally, we assess the sensitivity of the main determinants of derivatives across different types of crises and normal times. Our results are robust to different specifications that take into account the classification of derivatives by purpose (hedging versus trading).

Keywords: Banking; Derivatives; Financial risks; Hedging (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

DOI: 10.1007/s40888-020-00180-x

Access Statistics for this article

Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

More articles in Economia Politica: Journal of Analytical and Institutional Economics from Springer, Fondazione Edison
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-01-15
Handle: RePEc:spr:epolit:v:37:y:2020:i:2:d:10.1007_s40888-020-00180-x