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The use of financial derivatives and risks of U.S. bank holding companies

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  • Li, Shaofang
  • Marinč, Matej

Abstract

This article 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 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.

Suggested Citation

  • Li, Shaofang & Marinč, Matej, 2014. "The use of financial derivatives and risks of U.S. bank holding companies," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 46-71.
  • Handle: RePEc:eee:finana:v:35:y:2014:i:c:p:46-71
    DOI: 10.1016/j.irfa.2014.07.007
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    Cited by:

    1. Keffala, Mohamed Rochdi, 2015. "How using derivatives affects bank stability in emerging countries? Evidence from the recent financial crisis," Research in International Business and Finance, Elsevier, vol. 35(C), pages 75-87.
    2. repec:wsi:serxxx:v:62:y:2017:i:04:n:s0217590817400288 is not listed on IDEAS
    3. Košak, Marko & Li, Shaofang & Lončarski, Igor & Marinč, Matej, 2015. "Quality of bank capital and bank lending behavior during the global financial crisis," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 168-183.
    4. Sohel Azad, A.S.M. & Batten, Jonathan A. & Fang, Victor & Wickramanayake, Jayasinghe, 2015. "International swap market contagion and volatility," Economic Modelling, Elsevier, vol. 47(C), pages 355-371.
    5. F. Dilvin Ta?k?n & Ufuk Tutan, 2015. "Use of Derivatives and Financial Stability in Turkish Banking Sector," Proceedings of International Academic Conferences 2805197, International Institute of Social and Economic Sciences.

    More about this item

    Keywords

    Financial derivatives; Interest rate derivatives; Exchange rate derivatives; Credit derivatives; Systematic risk;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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