The Use of Financial Derivatives and Risks of U.S. Bank Holding Companies

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Abstract

This chapter 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 the 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.

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Notes

Acknowledgements

This chapter is co-authored with Matej Marinč. We would like to thank Giuseppe Galloppo, Iftekhar Hasan, Joon Ho Hwang, Marko Košak, Igor Lončarski, Nadia Massoud, Thu Hang Nguyen, and Min-Teh Yu, and the participants at the Midwest Finance Association Conference 2013 in Chicago, the participants at the 9th Conference of Asia-Pacific Association of Derivatives (APAD 2013) in Busan, the participants at the AIDEA 2013 Bicentenary conference in Lecce, and the participants at the INFINITI 2014 in Prato for their valuable comments and suggestions. This chapter was published in International Review of Financial Analysis.

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Copyright information

© Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.School of Economics and ManagementSoutheast UniversityNanjingChina

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