The Risks of Off-Balance Sheet Derivatives in U.S. Commercial Banks

Networks Financial Institute Working Paper 2009-WP-11

28 Pages Posted: 19 Feb 2010 Last revised: 30 Aug 2012

See all articles by Ahmad Y. Khasawneh

Ahmad Y. Khasawneh

Hashemite University - Faculty of Economics and Business Administrative

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 18, 2010

Abstract

This paper aims to test the extent to which the tax regulatory and discipline hypotheses determine derivative activities of U.S. commercial banks for period starting 1992 through 2008. We employ Mansfield’s (1961) logistic diffusion model and we consider derivative activities as real financial innovation following trend diffusion curve. The model is modified to include regulator, non-regulatory/specific factors and macroeconomic factors. The results reveal that derivative activities are real financial innovations that are increasing over time. Another major finding the regulatory tax hypothesis is not a major factor in determining derivative activities U.S. commercial banks. The results also suggest that derivatives activities do not business cycle and economic conditions. However, derivatives are prevalently used where economies of scale is a viable outcome since they require highly specialized qualified staff and are more likely available to large banks. The substitution effect dominant between derivatives and loan ratio factor. Diminishing credibility of the will reduce derivatives activities. While derivatives are more likely to be an innovation, they are also determined by other factors such as technology and learning.

Keywords: Off-balance sheet, OBS, banks risk, risk managment, Derivatives

JEL Classification: G21, G28, E44

Suggested Citation

Khasawneh, Ahmad Y. and Hassan, M. Kabir, The Risks of Off-Balance Sheet Derivatives in U.S. Commercial Banks (February 18, 2010). Networks Financial Institute Working Paper 2009-WP-11, Available at SSRN: https://ssrn.com/abstract=1554832 or http://dx.doi.org/10.2139/ssrn.1554832

Ahmad Y. Khasawneh (Contact Author)

Hashemite University - Faculty of Economics and Business Administrative ( email )

Zarqa 13115
Jordan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
324
Abstract Views
1,818
rank
36,399
PlumX Metrics