TAILIEUCHUNG - Interest-rate derivatives and bank lending

The rules and regulations of the BSP that govern the credit card operations of the banks and subsidiary credit card companies are not enough to screen out delinquent borrowers. As a prudential measure to protect banks and subsidiary credit card companies, the BSP requires these institutions to set up an appropriate system for managing their risk exposures to credit card operations and to document these exposures in a complete and concise manner. Before issuing credit cards, banks and their subsidiary credit card companies must exercise due diligence by ascertaining that applicants have a good credit standing and are financially capable. | ELSEVIER Journal of BẠNỊỌNG FINANCE Journal of Banking Finance 24 2000 353-379 locate econbase Interest-rate derivatives and bank lending Elijah Brewer III a Bernadette A. Minton b James T. Moser a a Research Department Federal Reserve Bank of Chicago 230 South LaSalle Street Chicago IL 60604-1413 USA b Ohio State University Columbus OH 43210 USA Received 5 April 1995 accepted 22 March 1999 Abstract We study the relationship between bank participation in derivatives contracting and bank lending for the period 30 June 1985 through the end of 1992. Since 1985 commercial banks have become active participants in the interest-rate derivative products markets as end-users or intermediaries or both. Over much of this period significant changes were made in the composition of bank portfolios. We find that banks using interest-rate derivatives experience greater growth in their commercial and industrial C I loan portfolios than banks that do not use these financial instruments. This result is consistent with the model of Diamond Review of Economic Studies 51 1984 393414 which predicts that intermediaries use of derivatives enables increased reliance on their comparative advantage as delegated monitors. 2000 Elsevier Science . All rights reserved. JEL classi cation G21 G28 Keywords Banking Derivatives Intermediation Swaps Futures During the 1980s and 1990s interest-rate derivatives gave banks opportunities to manage their interest-rate exposure and to generate revenue beyond that available from traditional bank operations. As a result banks have Corresponding author. Tel. 1-312-322-5769. E-mail address jmoser@ . Moser . 0378-4266 00 - see front matter 2000 Elsevier Science . All rights reserved. PII S0378-4266 99 00041-2 354 E. Brewer III et aỉ. I Journal of Banking Finance 24 2000 353-379 accumulated large positions in these off-balance sheet assets. While banks have become more active participants in the derivative products markets their

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