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The value of using interest rate derivatives to manage risk of U.S. banking organizations

Author

Listed:
  • Elijah Brewer
  • William E. Jackson
  • James T. Moser

Abstract

This article examines the major differences in the accounting and stock market characteristics of banking organizations that use derivatives relative to those that do not.

Suggested Citation

  • Elijah Brewer & William E. Jackson & James T. Moser, 2001. "The value of using interest rate derivatives to manage risk of U.S. banking organizations," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 49-66.
  • Handle: RePEc:fip:fedhep:y:2001:i:qiii:p:49-66:n:v.25no.3
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    References listed on IDEAS

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    1. Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," NBER Chapters,in: NBER Macroeconomics Annual 1995, Volume 10, pages 299-349 National Bureau of Economic Research, Inc.
    2. Stone, Bernell K., 1974. "Systematic Interest-Rate Risk in a Two-Index Model of Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(05), pages 709-721, November.
    3. Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-1153, September.
    4. Charles W. Calomiris & Berry Wilson, 1996. "Bank capital and portfolio management: the 1930s capital crunch and scramble to shed risk," Proceedings 521, Federal Reserve Bank of Chicago.
    5. Elizabeth S. Laderman, 1993. "Determinants of bank versus nonbank competitiveness in short-term business lending," Economic Review, Federal Reserve Bank of San Francisco, pages 17-32.
    6. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    7. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    8. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
    9. Brewer, Elijah III, 1989. "Relationship between bank holding company risk and nonbank activity," Journal of Economics and Business, Elsevier, vol. 41(4), pages 337-353, November.
    10. Kane, Edward J & Unal, Haluk, 1990. " Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms," Journal of Finance, American Finance Association, vol. 45(1), pages 113-136, March.
    11. Brewer III, Elijah & Minton, Bernadette A. & Moser, James T., 2000. "Interest-rate derivatives and bank lending," Journal of Banking & Finance, Elsevier, vol. 24(3), pages 353-379, March.
    12. Eric S. Rosengren, 1990. "The case for junk bonds," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 40-49.
    13. Herbert L. Baer & John N. McElravey, 1993. "Capital shocks and bank growth -- 1973 to 1991," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jul, pages 2-21.
    14. Lloyd, William P. & Shick, Richard A., 1977. "A Test of Stone's Two-Index Model of Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(03), pages 363-376, September.
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    Citations

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    Cited by:

    1. Memmel, Christoph & Schertler, Andrea, 2009. "The dependency of the banks' assets and liabilities: evidence from Germany," Discussion Paper Series 2: Banking and Financial Studies 2009,14, Deutsche Bundesbank.
    2. Christoph Memmel & Andrea Schertler, 2013. "Bank management of the net interest margin: new measures," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(3), pages 275-297, September.
    3. Memmel, Christoph & Schertler, Andrea, 2011. "Banks' management of the net interest margin: Evidence from Germany," Discussion Paper Series 2: Banking and Financial Studies 2011,13, Deutsche Bundesbank.
    4. Kristine Watson Hankins, 2011. "How Do Financial Firms Manage Risk? Unraveling the Interaction of Financial and Operational Hedging," Management Science, INFORMS, vol. 57(12), pages 2197-2212, December.
    5. Ioana-Diana PÃUN & Ramona GOGONCEA, 2013. "Interest Rate Risk Management and the Use of Derivative Securities," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 16(2), pages 242-254, December.
    6. Brewer, Elijah & Deshmukh, Sanjay & Opiela, Timothy P., 2014. "Interest-rate uncertainty, derivatives usage, and loan growth in bank holding companies," Journal of Financial Stability, Elsevier, vol. 15(C), pages 230-240.

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