We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, across institutions and within institutions over time. For...

We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, both across institutions and within institutions over time. For...

Empirically, bank equity value is decreasing in the interest rate. Yet (i) many banks do not hedge interest rate risk and (ii) above 50% of hedging banks use derivatives to increase exposure. We model a bank's capital structure, and show that these facts are consistent with optimal hedging under...

We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, both across institutions and within institutions over time. For...