Interest-rate derivatives and bank lending

Brewer, Elijah; Minton, Bernadette A.; Moser, James T.

doi:10.1016/s0378-4266(99)00041-2

Cited by 82 publications

(63 citation statements)

References 15 publications

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“…In regards to the negative and significant effect of the holdings of interest rate derivatives; previous literature such as Brewer, Minton, and Moser (2000) and Carter and Sinkey (1998) suggest the use of these derivatives being more frequent in banks more exposed to interest rate risk. Thus, the Carter andSinkley (1998) andDowning (2012) results support the hypothesis that banks use interest-rate derivatives to hedge interest rate risk.…”

Section: Determinants Of Systemic Risk: the Effect Of Banks' Holdingsmentioning

confidence: 97%

Derivatives Holdings and Systemic Risk in the U.S. Banking Sector

2012

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This paper studies the impact of the banks' portfolio holdings of financial derivatives on the banks' individual contribution to systemic risk over and above the effect of variables related to size, interconnectedness, substitutability, and other balance sheet information. Using a sample of 91 U.S. bank holding companies from 2002 to 2011, we compare five measures of the banks' contribution to systemic risk and find that the new measure proposed in this study, Net Shapley Value, outperforms the others. Using this measure we find that the banks' holdings of foreign exchange and credit derivatives increase the banks contributions to systemic risk whereas holdings of interest rate derivatives decrease it. Nevertheless, the proportion of non-performing loans over total loans and the leverage ratio have much stronger impact on systemic risk than derivatives holdings. We find that before the subprime crisis credit derivatives decreased systemic risk whereas during the crisis increased it. So, credit derivatives seemed to change their role from shock absorbers to shock issuers. This effect is not observed in the other types of derivatives. María Rodríguez-Moreno Derivatives Holdings and Systemic Risk in the U.S. Banking SectorAbstract This paper studies the impact of the banks' portfolio holdings of financial derivatives on the banks' individual contribution to systemic risk over and above the effect of variables related to size, interconnectedness, substitutability, and other balance sheet information.Using a sample of 91 U.S. bank holding companies from 2002 to 2011, we compare five measures of the banks' contribution to systemic risk and find that the new measure proposed in this study, Net Shapley Value, outperforms the others. Using this measure we find that the banks' holdings of foreign exchange and credit derivatives increase the banks contributions to systemic risk whereas holdings of interest rate derivatives decrease it. Nevertheless, the proportion of non-performing loans over total loans and the leverage ratio have much stronger impact on systemic risk than derivatives holdings.We find that before the subprime crisis credit derivatives decreased systemic risk whereas during the crisis increased it. So, credit derivatives seemed to change their role from shock absorbers to shock issuers. This effect is not observed in the other types of derivatives.

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Section: Determinants Of Systemic Risk: the Effect Of Banks' Holdingsmentioning

confidence: 97%

Derivatives Holdings and Systemic Risk in the U.S. Banking Sector

2012

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“…During the 1980s and 1990s, banking organizations role as the main providers of credit has diminished (see Boyd and Gertler, 1994;Kaufman and Mote, 1994;Berger, Kashyap, andScalise, 1995, Edwards andMishkin, 1995;and Brewer, Minton, and Moser, 2000). Brewer, Minton, and Moser report that from year-end 1974 to year-end 1992, the proportion of business loans in bank portfolios decreased from 21 percent to 16 percent of total bank assets.…”

Section: Introductionmentioning

confidence: 99%

Investment Opportunity Set, Product Mix, and the Relationship between Bank CEO Compensation and Risk-Taking

2004

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: The product mix changes that have occurred in banking organizations during the 1990s provide a natural experiment for investigating how firms adjust their executive compensation contracts as their mix of businesses changes. Deregulation and new technology have eroded banking organizations' comparative advantages and have made it easier for nonbank competitors to enter banking organizations' lending and deposit-taking businesses. In response, banking organizations have shifted their sale mix toward noninterest income by engaging in municipal revenue bond underwriting, commercial paper underwriting, discount brokering, managing and advising open-and close-ended mutual funds, underwriting mortgagebacked securities, selling and underwriting various forms of insurance products, selling annuities, and other investment banking activities via Section 20 subsidiaries. These mix changes could affect firms' risk and the structure of CEO compensation. The authors find that as the average banking organization tilts its product mix toward fee-based activities and away from traditional activities, equity-based compensation increases. They also find that more risky banks have significantly higher levels of equity-based compensation, as do banks with more investment opportunities. But, more levered banks do not have higher levels of equity-based CEO compensation. Finally, the authors observe that equity-based compensation is more important after the Riegle-Neal Act of 1994. JEL classification: G32; G34; G38; G21 Terms of use: Documents in

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“…Brewer et al (2000) find that commercial banks using interest rate derivatives had more rapid growth in lending over the period 1985-1992 than comparable banks not using derivatives. Wagner and Nijskens (2010) examine the impact of credit risk transfer on systemic risk using data from 1996-2007.…”

Section: … As Regards Traditional Banking and Derivativesmentioning

confidence: 79%

IMPACT of FINANCIAL CRISIS 2008-2009 on BANKING SECTOR STRUCTURE IN UKRAINE

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2015

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Interest-rate derivatives and bank lending

Cited by 82 publications

References 15 publications

Derivatives Holdings and Systemic Risk in the U.S. Banking Sector

Derivatives Holdings and Systemic Risk in the U.S. Banking Sector

Investment Opportunity Set, Product Mix, and the Relationship between Bank CEO Compensation and Risk-Taking

IMPACT of FINANCIAL CRISIS 2008-2009 on BANKING SECTOR STRUCTURE IN UKRAINE

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