interest-rate sensitivities of interest rate swap positions of U.S. commercial banks to empirically address the question of … whether swap contracts have increased or decreased systematic risk in the U.S. banking system. We find that the banking system … as a whole faces little net interest-rate risk from swap portfolios …

implies that they embed a short put option on the borrowers' assets, leading to a concave payoff. This has important … equity payoffs resemble a mezzanine claim rather than a call option. Bank equity return volatility is therefore much more …