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The Economic Effects of Client Losses on OTC Bank Derivative Dealers: Evidence from the Capital Market

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  • Clark, Jeffrey A
  • Perfect, Steven B

Abstract

This paper investigates the economic impact of client derivatives losses on OTC derivatives dealers. Its focus is on the capital marketers reaction to losses suffered by four end-users of OTC derivatives products arranged with Bankers Trust New York. Evidence is provided on the impact of these end-user losses on Bankers Trust itself as well as whether these losses produced any systemic or contagion effects extending to other major bank OTC derivatives dealers. Finally, the paper investigates whether possible systemic effects may be associated with bank specific characteristics, such as the level of derivatives exposure, counterparty risk, and reliance on trading income. Copyright 1996 by Ohio State University Press.

Suggested Citation

  • Clark, Jeffrey A & Perfect, Steven B, 1996. "The Economic Effects of Client Losses on OTC Bank Derivative Dealers: Evidence from the Capital Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 527-545, August.
    • Handle: RePEc:mcb:jmoncb:v:28:y:1996:i:3:p:527-45
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    Cited by:

    1. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    2. Sinkey, Joseph Jr. & Carter, David A., 1999. "The reaction of bank stock prices to news of derivatives losses by corporate clients," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1725-1743, December.
    3. Podlich, Natalia & Wedow, Michael, 2011. "Credit contagion between financial systems," Discussion Paper Series 2: Banking and Financial Studies 2011,15, Deutsche Bundesbank.
    4. David A. Carter & Daniel A. Rogers & Betty J. Simkins & Stephen D. Treanor, 2013. "Does hedging reduce economic exposure? Hurricanes, jet fuel prices and airlines," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 14, pages 341-354, Edward Elgar Publishing.
    5. Carter, David A. & Simkins, Betty J., 2004. "The market's reaction to unexpected, catastrophic events: the case of airline stock returns and the September 11th attacks," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(4), pages 539-558, September.
    6. Barbara A. Bliss & Jeffrey A. Clark & R. Jared DeLisle, 2018. "Bank risk, financial stress, and bank derivative use," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(7), pages 804-821, July.

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