Banks and Derivatives

49 Pages Posted: 13 Jul 2000

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 1995

Abstract

In the last ten to fifteen years financial derivative securities have become an important, and controversial, product for commercial banks. The controversy concerns whether the size, complexity, and risks associated with these securities, the difficulties with accurately reporting timely information concerning the value of firms' derivative positions, and the concentration of activity in a small number of firms, has substantially increased the risk of collapse of the world banking system. Despite the widespread attention to derivatives, there has been little systematic analysis. We estimate market values and interest-rate sensitivities of interest rate swap positions of U.S. commercial banks to empirically address the question of whether swap contracts have increased or decreased systematic risk in the U.S. banking system. We find that the banking system as a whole faces little net interest-rate risk from swap portfolios.

Suggested Citation

Gorton, Gary B. and Rosen, Richard J., Banks and Derivatives (April 1995). NBER Working Paper No. w5100. Available at SSRN: https://ssrn.com/abstract=225165

Gary B. Gorton (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New haven, CT 06511
United States

HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-6368 (Phone)
312-294-6262 (Fax)

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