Recent Innovations in Interest Rate Risk
Management and the Reintermediation of Commercial
Banking
Keith C. Brown
Donald J. Smith
Financial Management 17, 1988, pp. 45-58
In response to increased competitive pressures on
their traditional business activities, many money-center commercial banks have
begun to actively search for new ways to produce fee-based income. A promising development has been the creation
of products and techniques designed to manage the interest rate exposure of a
corporate client. However, since many of
these new products are traded in the over-the-counter markets, the role of the
banking system is not as yet well understood.
Our purpose in this paper is to outline the structure and applications
of these interest rate risk management vehicles. With the advent of this
activity, we argue that commercial banks are properly thought of as being an
intermediary between futures and options exchanges and the ultimate corporate
user of the hedging product.
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