EconPapers    
Economics at your fingertips  
 

Derivatives Activity at Troubled Banks

Joe Peek and Eric Rosengren (e.rosengren@comcast.net)

No 358, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Derivatives have become an essential instrument for hedging risks, yet moral hazard can lead to their misuse by problem banks. Given that the absence of comprehensive data on bank derivatives activities prevents an accurate assessment of bank risk-taking, banks have an opportunity to take unmonitored second bets. Thus, troubled banks have the motive to increase risk, and derivatives provide the means to do so. The role of bank supervisors should be to limit the opportunity through more comprehensive data reporting requirements and closer supervisory scrutiny of derivatives activity at problem banks. Because a relatively large number of banks active in the derivatives market have low capital ratios and are considered institutions with a significant risk of failure by bank supervisors, the possible misuse of derivatives by troubled banks should be of concern to regulators. However, we find no evidence that the volume of derivatives activity at troubled banks affects the probability of formal regulatory intervention or even a downgrade in supervisory rating.

JEL-codes: G13 G21 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1996-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp358.pdf (application/pdf)

Related works:
Journal Article: Derivatives Activity at Troubled Banks (1997) Downloads
Working Paper: Derivatives activity at troubled banks (1996) Downloads
Working Paper: Derivatives Activity at Troubled Banks (1996) Downloads
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: https://EconPapers.repec.org/RePEc:boc:bocoec:358

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum (baum@bc.edu).

 
Page updated 2025-03-30
Handle: RePEc:boc:bocoec:358