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Use of Derivatives and Financial Stability in Turkish Banking Sector

Author

Listed:
  • F. Dilvin Ta?k?n

    (Yasar University, Department of Business Administration)

  • Ufuk Tutan

    (Yasar University, Department of Economics)

Abstract

The aim of this paper is to analyze the impact of derivatives use on the stability of the banks that are operating in Turkish banking system for the period between 2005 and 2014, which is the period after the establishment of Turkish Derivatives Exchange. The risk of a bank is defined as a probability of default and Z-index is calculated for each bank. The results show that derivative instruments significantly increase the risks of banks; on the other hand bank risk is not a significant determinant of derivative usage. Liquid assets also increase and interest revenues decrease the risk of banks. When the determinants of derivative portolio is analyzed it is understood that larger banks and foreign banks and banks with larger loan portfolio and liquid assets hold more of derivative products and banks which have higher interest revenues to total assets are more likely to engage in traditional banking activities.

Suggested Citation

  • F. Dilvin Ta?k?n & Ufuk Tutan, 2015. "Use of Derivatives and Financial Stability in Turkish Banking Sector," Proceedings of International Academic Conferences 2805197, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:2805197
    as

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    File URL: https://iises.net/proceedings/19th-international-academic-conference-florence/table-of-content/detail?cid=28&iid=134&rid=5197
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    References listed on IDEAS

    as
    1. Au Yong, Hue Hwa & Faff, Robert & Chalmers, Keryn, 2009. "Derivative activities and Asia-Pacific banks' interest rate and exchange rate exposures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 16-32, February.
    2. Ken Cyree & Pinghsun Huang & James Lindley, 2012. "The Economic Consequences of Banks’ Derivatives Use in Good Times and Bad Times," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(3), pages 121-144, June.
    3. Stulz, Rene, 2010. "Credit default Swaps and the Credit Crisis," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 157-175.
    4. Mayordomo, Sergio & Rodriguez-Moreno, Maria & Peña, Juan Ignacio, 2014. "Derivatives holdings and systemic risk in the U.S. banking sector," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 84-104.
    5. Instefjord, Norvald, 2005. "Risk and hedging: Do credit derivatives increase bank risk?," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 333-345, February.
    6. Li, Shaofang & Marinč, Matej, 2014. "The use of financial derivatives and risks of U.S. bank holding companies," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 46-71.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank risk; Z-index; derivative usage; Turkish banking sector;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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