Essays on risk management strategies for U.S. bank holding companies.

摘要

Risks in the banking industry occasionally come into the public spotlight due to events such as the recent financial crisis. This study examines risk characteristics of bank holding companies (BHCs) based upon their use of interest rate derivatives. Prior research examining interest rate derivatives in BHCs is based upon data prior to the required segregation indicating whether or not derivatives are used for trading. This research uses segregated derivative data. BHCs are divided into those using no derivatives, those using non-trading derivatives, and those using both trading and non-trading derivatives. Differences in both interest rate sensitivity and overall firm risk between BHCs of differing derivative types are analyzed. Evidence indicates BHCs using non-trading derivatives have higher interest rate sensitivity than those using no derivatives. In addition, BHCs using both non-trading and trading derivatives have greater interest sensitivity than BHCs using only non-trading derivatives. BHCs using derivatives regardless of type do not exhibit greater overall volatility than BHCs using no derivatives.;Selective hedging, partially but not fully hedging a risk exposure, is also examined. BHCs successfully trading in derivatives must invest in personnel with the requisite expertise. It is plausible these BHCs would leverage this expertise to selectively hedge in their non-trading portfolio. Whether or not these BHCs selectively hedge is inconclusive. However, in most instances, derivative positions in the non-trading portfolio of these BHCs are advantageous.;Whether operational hedging is a substitute for or a complement to financial hedging is also explored. Prior research limits operational hedging in BHCs to merger and acquisition activity. This research examines operational activities involving geographic diversification, loan diversification, and non-interest income diversification. Evidence supports these operational activities act as hedges and are substitutes for financial hedging. Of the three operational hedges examined, only geographic diversification is associated with decreased BHC interest rate sensitivity.;This dissertation contributes to existing literature by fostering a clearer understanding of BHC risk management strategies. Given the crucial role the health of the banking industry plays in the overall health of the economy, understanding how banks manage various risks is beneficial to regulators and investors.