Derivatives help thrifts reduce risk and boost profits in US.
The article examines how US savings associations used derivatives to manage interest-rate risk from 1993 to 1997. By analyzing detailed thrift data, researchers found that thrifts used derivatives to reduce interest-rate risk and avoid capital compliance issues. They also discovered that derivatives users had higher net interest margins after accounting for risk factors. Smaller institutions were less likely to use derivatives, indicating limitations in managing interest-rate risk efficiently.