It has been argued that underpriced federal deposit insurance provides incentive for insured institutions to increase the value of shareholder equity by expanding into activities that shift risk onto the deposit insurer. Derivative instruments have been used by firms to change their risk...

Since 1985 commercial banks have become active participants in the interest-rate derivative products markets either as end-users or as intermediaries or as both. Over this same period significant changes were made in the composition of bank portfolios. This paper investigates the relationship...