Banks' Derivatives Exposures Not Necessarily Evidence of Excessive Risk-Taking
Banks often see their value drop when interest rates go up, but many don't protect themselves from this risk. Surprisingly, over half of the banks that do hedge actually increase their risk using financial tools. A study shows that this behavior is actually smart due to financial obstacles. The study also found that banks using these tools to bet on interest rates can be making strategic moves, not just risky ones. This challenges the idea that all bets on interest rates are dangerous.