The Impact Of Financial Derivatives Transactions On Chinese Listed Banks

With the rapid development of China's interest rate marketization and exchange rate reform,the demand for risk mitigation tools such as interest rate and foreign exchange rate derivatives has been continuously improved in domestic enterprises and financial institutions.Financial derivatives have become an important choice for enterprises and financial institutions to prevent financial risks.On the one hand,Commercial banks are hedged through financial derivatives transactions,which effectively release risk of banks.On the other hand,through derivatives transactions,Commercial banks can save tax cost and financial distress cost and effectively manage assets and liabilities to improve the operation performance.However,due to the characteristics of high leverage and derivation of derivatives trading,the risk exposure of banks increased with the expansion of the transaction scale of derivatives.Especially since the financial crisis in 2008,there have been serious questions about the performance of derivatives and their implied risks.Therefore,it is of great practical significance to study the relationship between financial derivative transactions and banks.In addition,derivative transactions have mainly influence on banks' risk and performance,which are interrelated and interdependent.Commercial Banks are profitable,while excessive chasing profits will raise risks.Therefore,the paper investigates the risk and performance of Banks.Based on the theoretical analysis and empirical research,this paper investigates the relationship between financial derivative trading and bank risk and performance.Firstly,this paper analyzes the basic theory and mechanism of financial derivatives on bank risk and performance.In terms of bank's risk,on the one hand,banks use financial derivatives to hedge risks,and through investment diversification to achieve risk diversification and reduce the level of bank risk;On the other hand,banks may increase the risk of banks due to the lack of supervision of derivatives market,adverse selection and other issues.In terms of bank performance,commercial banks can improve the performance through derivatives trading by lowering financing costs,financial distress costs and save taxes.But because of the high professionalism and complexity of derivative transactions,derivatives mismatches,term mismatch as well bank operations errors may cause losses to.the bank,which will reduce the profitability of the bank.Secondly,this paper analyzes the present situation and characteristics of financial derivatives trading of listed banks,it is found that the financial derivatives business of commercial banks in China has developed rapidly in recent years,and the majority of listed banks give priority to foreign exchange derivatives,some small and medium-sized listed banks' interest rate derivatives deals exceed the foreign exchange derivatives,and other types of financial derivatives trading scale is very small.At the same time,compared with five major state-owned commercial banks,joint-stock commercial banks,joint-stock commercial banks financial derivatives transactions accounted for a higher proportion of total assets.Therefore,it is concluded that the development of financial derivatives business is more radical in small and medium-sized listed banks.Thirdly,this paper studies the impact of financial derivatives trading on the risk and performance of listed banks by comparing the semi-annual and annual data of 16 listed banks in China in 2009-2016,and compares the state-owned banks and the joint-stock banks.It is concluded that the financial derivative transactions have increased the risk level of China's listed banks to a certain extent while improving the performance of banks,among which the influence of joint-stock banks is more obvious.Finally,this paper puts forward some relevant policy suggestions on the future development of the financial derivatives business of the bank in the light of the practice of financial derivatives trading in China.It mainly includes:strengthening the development and application of financial derivatives;building internal conditions and risk internal control system;improving the financial derivatives market supervision mechanism and relevant laws and regulations;training financial derivatives trading professionals.