Trading Income and Bank Charter Value during the Financial Crisis: Does Derivatives Dealer Designation Matter?
Derivative markets have exploded over the last decade, remained active in the midst of the 2007-2009 financial crises and continue to be dominated by a small group of bank holding companies (BHC). BHC motives for derivative usage are usually tied to hedging purposes (balance sheet risk management), trading purposes (profit motives) or some combination thereof. This paper examines the relationship between derivative trading income and bank charter value for 27 BHC between 2001Q1-2011Q3. We find that the impact of derivative trading income on bank charter value, using Tobin’s Q, is very small and seems to be tied to BHCs derivatives dealer trading designation. We also find that trading incomes are a modest fraction of net operating revenue, highly volatile, and did not contribute to overall BHC income during the crisis.
Egly, P. V., & Sun, J. (2014). Trading income and bank charter value during the financial crisis: Does derivatives dealer designation matter? The Quarterly Review of Economics and Finance, 54(3), 355–370. https://doi.org/10.1016/j.qref.2014.04.001
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The Quarterly Review of Economics and Finance
Copyright © 2014 The Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved. Original published version available at https://doi.org/10.1016/j.qref.2014.04.001