Interest Rate Risk Management of Bank Holding Companies: An Examination of Trade-Offs in the Use of Investment Securities and Interest Rate Swaps

Posted: 21 Jul 1997

See all articles by Anne Beatty

Anne Beatty

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

Bruce Bettinghaus

Michigan State University - Department of Accounting & Information Systems

Date Written: May 1997

Abstract

This paper examines the extent to which bank holding companies trade-off the use of investment securities and interest rate swaps when managing interest rate risk inherent in their core business. We find that both securities and swaps are used to hedge interest rate risk and that these two types of financial instruments are used as substitute hedging mechanisms. Our evidence suggests that the FASB's current proposal limiting hedge accounting treatment to derivative financial instruments may not reflect how banks manage interest rate risk. In addition, the discrepancy in accounting treatment may lead banks to prefer one of these two types of financial instruments.

JEL Classification: M41, G21, G28

Suggested Citation

Beatty, Anne L. and Bettinghaus, Bruce, Interest Rate Risk Management of Bank Holding Companies: An Examination of Trade-Offs in the Use of Investment Securities and Interest Rate Swaps (May 1997). Available at SSRN: https://ssrn.com/abstract=8546

Anne L. Beatty (Contact Author)

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

2100 Neil Avenue
Columbus, OH 43210
United States

Bruce Bettinghaus

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

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