فعالیت های مشتق شده و نرخ بهره بانک آسیا و اقیانوس آرام و مواجهه با نرخ ارز
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|8935||2009||17 صفحه PDF||سفارش دهید||8397 کلمه|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of International Financial Markets, Institutions and Money, Volume 19, Issue 1, February 2009, Pages 16–32
In this paper, we investigate whether the level of derivative activities of Asia-Pacific banks is associated with the market's perception of their interest rate and exchange rate risks. The results suggest that the level of derivative activities (especially interest rate derivatives) is positively associated with long-term interest rate exposure (LTIR) but negatively associated with short-term interest rate exposure (STIR). Further investigations reveal that the positive LTIR exposures are driven by banks with extensive derivative activities. We do not find any significant association between banks’ derivative activities and exchange rate exposure. The significant positive association between the level of derivative activities and LTIR suggests the need for better management of banks’ internal control systems and/or greater derivative disclosure requirements to bring stronger market discipline to banks, particularly for banks with extensive derivative activities.
After playing a major role in several highly publicized financial scandals, banks’ derivative activities have become increasingly controversial.1 Indeed, these incidents have sparked debate regarding the value and risks of derivative activities. On the one hand for example, the US Federal Reserve Board Chairman Alan Greenspan argues that derivatives have contributed to the development of a ‘far more flexible, efficient and resilient financial system than existed just a quarter-century ago’. In contrast, noted US investor Warren Buffet views derivatives as ‘time bombs for both the parties that deal in them and the economic system’. Randall Dodd, the director of the Derivatives Study Center, a Washington think tank,2 regards derivatives as a ‘double-edged sword’ in that ‘they are extremely useful for risk management but they also create a host of new risks that expose the entire economy to potential financial market disruptions’ (Berry, 2003). Since derivative-related losses might cause the failure of large banks, precipitating a collapse of the payment and credit system especially in a bank-centered economy, regulators and investors should be, and are, concerned about the potential misuse of derivatives. The fact that many of these derivative activities have traditionally been off-balance sheet has made it very difficult for external stakeholders to assess the level of banks’ risk exposures. Derivative activities can reduce banks’ risk if they are effectively used for hedging purposes or meeting customers’ needs.3 If banks use derivatives for trading purposes, derivative activities can increase banks’ risk. For example, due to an accounting loophole,4 concerns were expressed that large Japanese banks were using profits from speculative interest rate swaps to conceal their operating activity losses after the 1998 Big Bang reform (The Economist, 2002).5 Financial scandals associated with derivative activities are not confined to the US and European region. For example, in 2004 the National Australia Bank lost approximately AUD360 million when four foreign currency dealers engaged in 3 months of unauthorized derivatives trades, that was undetected due to lack of internal controls (McCallum, 2004). While such financial scandals have motivated the analysis of derivative activities and risk consequences of banks in the US (e.g. Choi and Elyasiani, 1997 and Chaudhry et al., 2000), studies of this type are largely absent in the Asia-Pacific region.6 In addition, the extensive and rapidly increasing derivative activities of Asia-Pacific banks also warrant an investigation into this issue.7 Accordingly, we analyze whether the level of derivative activities is associated with the market's perception of banks’ interest rate (IR) and exchange rate (ER) risks for a sample of Asia-Pacific banks. We find that the level of derivative activities (especially interest rate derivatives) is positively associated with long-term interest rate (LTIR) exposure but negatively associated with short-term interest rate (STIR) exposure. Further investigation reveals that the positive LTIR exposures are driven by banks with extensive derivative activities. There is no significant evidence that banks’ derivative activities are associated with ER exposure. Our study contributes to the literature in a number of ways—most notably, regarding the ‘value versus risk’ debate surrounding derivative activities in the banking sector. Moreover, our focus on the Asia-Pacific region fills an important gap in the literature. Our findings will be particularly useful in addressing regulatory concerns regarding the risk effect of derivative usage. More specifically, observing that derivative activities of Asia-Pacific banks to some extent increase banks’ risk, reinforces and extends the scope of the important message emanating from this literature. That is, regulators should continue to encourage better management of banks’ internal control systems and/or seek greater derivative disclosure. Such regulatory action will help mitigate future banking losses when unfavorable shifts in interest rates and/or exchange rates recur.8 The remainder of the paper is organized as follows. Section 2 presents a literature review of the association between derivative use and banks’ IR and ER exposures. Section 3 describes the data and methodology employed to investigate our research questions. Section 4 presents the empirical results and discussions. Section 5 summarizes and concludes our paper. 2. Banks’ derivative activities and risks While hedging theory often assumes that firms use derivatives for risk reduction, a counterview suggests a speculative motivation. This theory is built on the Black and Scholes (1973) analogy between options and corporate claims. According to the analogy, higher volatility is beneficial to equity owners – holders of call options – as an option payoff increases when the volatility of the underlying asset's value increases. Hence, shareholders of leveraged firms (and particularly those in financial distress) have incentives to increase firm riskiness to transfer wealth from bondholders to shareholders (Hentschel and Kothari, 2001). Hentschel and Kothari (2001) investigate whether US firms systematically reduce or increase their riskiness with the level of derivative activities. They find that firms’ use of derivatives does not measurably increase or decrease firms’ return volatility. The association between derivative usage and risk is of interest to the banking industry because banks are major users of derivatives. Banks are active in derivatives as end-users to hedge on-balance sheet risks and as dealers to boost non-interest income. Since derivatives provide a relatively easy and cost effective means for banks to alter their risk profile, regulators and investors are particularly concerned about whether banks use derivatives primarily to reduce risk from other banking activities (i.e. hedging) or for trading purposes to increase income, accompanied by higher levels of risk exposure (i.e. speculating). Several empirical studies have investigated the association between derivative activities and banks’ risks. Analyzing the association between interest rate derivatives and the risk of US bank holding companies, Hirtle (1997) finds that derivatives played a significant role in shaping bank's IR risk exposure in recent years. Investigating the association between foreign currency derivatives and bank risk (market-based ER exposures) of US commercial banks, Choi and Elyasiani (1997) find that the use of derivatives creates systematic risk beyond the level reflected in a bank's traditional financial statement exposures. Later studies disaggregate derivative activities according to derivative type and investigate the association between banks’ risks and derivative type. Chaudhry and Reichert (1999) examine the impact of interest rate derivatives on four different measures of banks’ risk, namely, total risk, systematic risk, IR risk, and unsystematic risk. They report that IR options (swaps) consistently increase (reduce) each of the four measures of bank risk. Chaudhry et al. (2000) investigate the association between different foreign currency derivative types (namely, forwards, swaps, futures and options) and banks’ risk, measured by market, systematic, unsystematic, IR and ER exposures. Again, their findings suggest that the use of options tends to increase each of the bank risk measures while swaps are used primarily for hedging. Forward contracts contribute minimally to risks. Reichert and Shyu (2003) extend previous studies by focusing on international dealer banks in the US, Japan and Europe to investigate how the derivative activities of these banks are associated with their market, IR and ER risks. Consistent with previous evidence, they find the use of IR options increases the IR beta for all banks, while IR and currency swaps generally reduce risk. For Japanese banks, only IR swaps have a significantly positive impact on EVaR. They conclude that their findings are generally consistent with previous literature that focused exclusively on US commercial banks.
نتیجه گیری انگلیسی
In this paper, we investigate the association between banks’ derivative activities and their interest rate and exchange rate exposures. The use of derivatives does seem to reduce Asia-Pacific banks’ short-term interest rate (STIR) exposure but not their long-term interest rate (LTIR) exposure. A possible explanation for this finding is that banks might use derivatives to speculate LTIR changes or banks’ derivative trading activities may have exposed them to LTIR changes that are not effectively hedged. Further investigation revealed that the positive LTIR exposures are driven by banks with extensive derivative activities, supporting the argument that these banks are more likely to speculate with derivatives. There is no significant evidence that banks’ derivative activities are associated with ER exposure. On the one hand, our findings that derivatives are used for hedging STIR exposures should provide some comfort to regulators and investors. However, the significant positive association between derivative activities and LTIR exposure for banks with extensive derivative activities warrants further investigation. If such a finding is shown to be robust across follow-up studies, it would suggest the need for better management of banks’ internal control systems and/or greater derivative disclosures to impose market discipline on banks to ensure that there is no unwarranted risk taking. Such actions would help reduce the likelihood and magnitude of banking losses, for example, in the event of a sudden unfavorable shift in long-term interest rates.