Derivatives holdings and bank systemic risk: Cross-country evidence
In this paper, we analyse data from 493 listed banks across 28 countries to investigate the impact and mechanisms through which banks' derivatives holdings influence systemic risk. Our empirical results indicate that banks' derivatives holdings significantly increase systemic risk. Regardi...
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| Language: | English |
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Elsevier
2025-07-01
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| Series: | Borsa Istanbul Review |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2214845025000511 |
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| author | Yu Wang Gaoya Song Yiming Lu |
| author_facet | Yu Wang Gaoya Song Yiming Lu |
| author_sort | Yu Wang |
| collection | DOAJ |
| description | In this paper, we analyse data from 493 listed banks across 28 countries to investigate the impact and mechanisms through which banks' derivatives holdings influence systemic risk. Our empirical results indicate that banks' derivatives holdings significantly increase systemic risk. Regarding the underlying mechanisms, we find that derivatives holdings increase systemic risk by increasing asset risk, leverage risk, and operational risk. After conducting a series of robustness checks, our findings remain consistent. Heterogeneity analysis reveals that the effect of banks' derivatives holdings on systemic risk is particularly pronounced during periods of economic downturns and accommodative monetary policy. Furthermore, this influence is especially significant when banks exhibit higher leverage and lower liquidity. We also examine the differential impacts of various types of derivatives holdings on systemic risk. Our research enriches the understanding of the driving factors and transmission channels of systemic risk, assisting regulatory agencies in better identifying and addressing the systemic risk associated with derivatives holdings. |
| format | Article |
| id | doaj-art-d85c2ff1a9e2418aa56bc59be2093213 |
| institution | OA Journals |
| issn | 2214-8450 |
| language | English |
| publishDate | 2025-07-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Borsa Istanbul Review |
| spelling | doaj-art-d85c2ff1a9e2418aa56bc59be20932132025-08-20T02:35:29ZengElsevierBorsa Istanbul Review2214-84502025-07-0125468169110.1016/j.bir.2025.03.006Derivatives holdings and bank systemic risk: Cross-country evidenceYu Wang0Gaoya Song1Yiming Lu2School of Economics and Management, Yanshan University, Hebei Province, Qinhuangdao, 066004, PR ChinaSchool of Business, Wuyi University, Fujian Province, Wuyishan, 354300, PR China; Corresponding author.School of Economics, Northeastern University at Qinhuangdao, Hebei Province, Qinhuangdao, 066004, PR ChinaIn this paper, we analyse data from 493 listed banks across 28 countries to investigate the impact and mechanisms through which banks' derivatives holdings influence systemic risk. Our empirical results indicate that banks' derivatives holdings significantly increase systemic risk. Regarding the underlying mechanisms, we find that derivatives holdings increase systemic risk by increasing asset risk, leverage risk, and operational risk. After conducting a series of robustness checks, our findings remain consistent. Heterogeneity analysis reveals that the effect of banks' derivatives holdings on systemic risk is particularly pronounced during periods of economic downturns and accommodative monetary policy. Furthermore, this influence is especially significant when banks exhibit higher leverage and lower liquidity. We also examine the differential impacts of various types of derivatives holdings on systemic risk. Our research enriches the understanding of the driving factors and transmission channels of systemic risk, assisting regulatory agencies in better identifying and addressing the systemic risk associated with derivatives holdings.http://www.sciencedirect.com/science/article/pii/S2214845025000511G21G18M14 |
| spellingShingle | Yu Wang Gaoya Song Yiming Lu Derivatives holdings and bank systemic risk: Cross-country evidence Borsa Istanbul Review G21 G18 M14 |
| title | Derivatives holdings and bank systemic risk: Cross-country evidence |
| title_full | Derivatives holdings and bank systemic risk: Cross-country evidence |
| title_fullStr | Derivatives holdings and bank systemic risk: Cross-country evidence |
| title_full_unstemmed | Derivatives holdings and bank systemic risk: Cross-country evidence |
| title_short | Derivatives holdings and bank systemic risk: Cross-country evidence |
| title_sort | derivatives holdings and bank systemic risk cross country evidence |
| topic | G21 G18 M14 |
| url | http://www.sciencedirect.com/science/article/pii/S2214845025000511 |
| work_keys_str_mv | AT yuwang derivativesholdingsandbanksystemicriskcrosscountryevidence AT gaoyasong derivativesholdingsandbanksystemicriskcrosscountryevidence AT yiminglu derivativesholdingsandbanksystemicriskcrosscountryevidence |