In the last ten to fifteen years financial derivative securities have become an important, and controversial, product for commercial banks. The controversy concerns whether the size, complexity, and risks associated with these securities, the difficulties with accurately reporting timely information concerning the value of firms' derivative positions, and the concentration of activity in a small number of firms, has substantially increased the risk of collapse of the world banking system. Despite the widespread attention to derivatives, there has been little systematic analysis. We estimate market values and interest-rate sensitivities of interest rate swap positions of U.S. commercial banks to empirically address the question of whether swap contracts have increased or decreased systematic risk in the U.S. banking system. We find that the banking system as a whole faces little net interest-rate risk from swap portfolios.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5100.
Length: Date of creation: Apr 1995 Date of revision: Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER. Handle: RePEc:nbr:nberwo:5100
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Find related papers by JEL classification: G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
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