Evidence on Interest Rate Risk Management and Derivatives Usage by Commercial Banks

37 Pages Posted: 2 Oct 1997

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Anne Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Carolyn Takeda

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: July 1997

Abstract

This study provides evidence on the Interest Rate Risk (IRR) management activities of commercial banks including their use of derivatives. We find that (i) banks primarily focus on managing interest rate sensitivity of net income rather than the interest rate sensitivity of stock returns, (ii) the level of IRR taken by banks is directly related to liquidity, and inversely related to managerial quality and bank size, (iii) derivative users as a group have lower mean and median exposure than non-users, and (iv) for the majority of users, derivative usage reduces exposure. These findings are inconsistent with the view that derivatives threaten the viability of the banking system.

JEL Classification: G32, M41, M43

Suggested Citation

Ahmed, Anwer S. and Beatty, Anne L. and Takeda, Carolyn, Evidence on Interest Rate Risk Management and Derivatives Usage by Commercial Banks (July 1997). Available at SSRN: https://ssrn.com/abstract=33922 or http://dx.doi.org/10.2139/ssrn.33922

Anwer S. Ahmed (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Anne L. Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Carolyn Takeda

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
College of Business Administration
Gainsville, FL 32611-7168
United States
352-392-0340 (Phone)
352-392-0301 (Fax)

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