Research On The Impact Of Financial Derivatives Transactions On Bank Performance

Since the 1970s,the deepening reform of the financial system and the sweeping wave of financial innovation have resulted in the increasing financial risks and the imminent search for new hedging tools.Financial derivatives have emerged since then.Limited by the slow development of the basic financial market,China's financial derivatives market started late,but in recent years,China's economy has developed rapidly,and the financial derivatives market has achieved prosperity and leapfrog development.According to the report on the operation of the interbank market in 2018,transactions of interbank foreign exchange derivatives reached 116.25 trillion yuan,up 23,7 percent year on year,and accounted for 69.1 percent of the interbank foreign exchange market,up from 68.3 percent in 2017.In the interbank interest rate derivatives market,transactions totaled 21.6 trillion yuan,up 49.7 percent year-on-year,with interest rate swaps leading the way.Financial derivatives are a double-edged sword.High leverage reduces the cost for commercial Banks to participate in trading,but at the same time,it also magnifies the risk.Improper use of derivatives will bring serious losses to Banks.Therefore,it is very important to study the impact of financial derivatives on bank performance and through what channels.First of all,this paper reviews the previous literature and finds that most scholars support the positive impact of financial derivatives on bank performance,and more scholars believe that the impact of financial derivatives is related to the type,use and nature of Banks.Then,from the two trading forms of financial derivatives,the paper analyzes the theoretical mechanism that influences bank performance.When used in proprietary trading,it will produce tax shield effect,financial effect and investment effect.When it is used to deal on behalf of customers,it mainly involves scope economy,synergies and portfolio theory,and theoretically analyzes the cash flow path that derivatives affect bank performance.Then,the panel data of 16 domestic listed Banks from 2008 to 2017 are subject to multiple linear regression,and the impact of commercial Banks' participation in financial derivatives trading on their performance is analyzed from the overall and structural aspects,the 16 listed Banks were divided into large state-owned Banks and small and medium-sized non-state-owned Banks for sample regression,in order to test the influence of financial derivatives on bank performance exists heterogeneity.Finally,the cash flow path of financial derivatives affecting bank performance is verified.The research findings of this paper are as follows:(1)financial derivatives have a significant positive correlation with bank performance,especially on the performance of non-state-owned Banks.(2)both foreign exchange derivatives and interest rate derivatives can signifieantly promote the improvement of bank performance,but the positive effect of interest rate derivatives on bank performance is weaker than that of foreign exchange derivatives;(3)by using financial derivatives,Banks can regulate cash flow fluctuations and improve performance.Based on the above conclusions,this paper puts forward some Suggestions on differentiated management from the perspectives of innovation and supervision of derivatives.