The derivatives market has experienced quick growth all over the world in the last two decades. Banks decide to participate in the derivatives market either to hedge against financial risks or for trading and broker-dealer activities. This paper analyses, by means of multivariate descriptive statistical tools, the determinants of Italian banks’ use of derivatives over a long time horizon (2003-2017) by using quarterly Bank of Italy supervisory data.
Results show that the notional amount of contracts is positively associated to bank’s size, furthermore association to banking groups enables smaller banks to act more like their larger affiliates rather than similar sized banks that do not belong to groups. Banks mainly employ derivatives to hedge against risks, such as interest rate and credit risks. We also find that derivatives represent alternative means of hedging with respect to capital and liquidity.
Published in 2020 in: Economia Politica, v. 37, 2, pp. 621-657
