Does the Use of Derivatives Impact Bank Performance? A Case Study of Relative Performance During 2002-2009

This study investigates whether the use of derivatives by US banks have impacted the performance of these banks. Data in this study was collected over the period of 2002-2009, with the study focusing on five US banks. In the first stage of the study financial ratios Return on Assets (ROA), Return on Equity (ROE), Efficiency Ratio, Cost of Funding Earning Assets, Net Interest Margin would be calculated to measure the performances while regression analysis would be used in the second stage to measure the sensitivity of using of the derivatives in these banks to their performance. The result from the study suggested a positive correlation between the banks performance and usages of derivatives. The study also showed a positive correlation between the efficiency of these banks and the usage of derivatives