The Influence Of Financial Derivatives Business On China’s Listed Commercial Banks’ Profitability

Since the 1970s, with financial system and innovation emerging constantly, financial risk was growing daily. Against this background, financial derivatives with function of hedging and low transaction cost characteristics obtained rapid development. In recent years, the demand for financial derivatives increased. The amount of derivatives used by commercial banks increased year by year. However, the subprime mortgage crisis of USA in 2008 revealed the feature of high risk embedded in financial derivatives trading. And many commercial banks in the United States were exposed to credit crisis, causing serious damage to the economy. As an important participant of Chinese market economy, commercial banks help maintain financial stability and promote the economy. As a result, the stability of market economy is related to commercial banks which are facing an increasing amount of financial derivatives.This paper reviews and searches the literature about the influence of financial derivatives on commercial banks at home and abroad at first. Secondly, present development situation of financial derivatives of our commercial banks is analyzed, and main problems are summarized. Then the influence of financial derivatives on commercial banks’ profitability is researched theoretically and empirically. Conclusions are as follows:for the moment, the effect of financial derivatives on commercial banks’ profitability is not significant influence or negative, the increase of Financial derivatives may make banks’ profitability decline. According to the conclusion, this paper puts forward suggestions about the development of financial derivatives of our commercial banks. First, kinds of financial derivatives should be enriched, and trading volume of derivative products should be increased. Second, commercial banks are suggested to strengthen the internal control system to prevent trading risk. Third, it is also suggested to cultivate professional talents, and strengthen employee’s professional ethics.