Trimming the Hedges: Regulators, Banks and Financial Futures
The regulation of banks, savings and loan associations and other depository financial intermediaries stresses the prevention of insolvency and failure. This traditional emphasis has caused regulators to worry about the development and growth of financial futures contracts in recent years. Financial futures contracts represent an effective vehicle for hedging interest rate risk, but the fear is that institutions will use them to speculate on interest rate changes in order to increase earnings rather than to reduce risk.
