DerivaQuote

Banking and Derivatives

Derivatives have replaced commercial lending as the bread and butter of the business of big banking.

Derivatives must be carefully managed and supervised. We should be especially careful, however, not to discourage innovations or be close minded about change. Banking is not intended to be a risk-free activity. Risk-taking is a necessary condition of economic progress and rising standards of living.

Alan Greenspan, chairman
Board of Governors of the Federal Reserve System
American Bankers Association Convention, San Diego
November 7, 1993

Our use of derivatives is just one more step in the evolution of banking.

John B. McCoy, chairman and CEO
Bank One Corp.
Journal of Applied Corporate Finance, Fall, 1994, p. 33

Don't focus on derivatives. One of the most dangerous activities of banking is lending.

Ernest Patrikis, Federal Reserve Bank of New York
Futures, March, 1996, p. 21

Why in the world more banks don't look at interest rate swaps . . . I don't know. It's not an esoteric phenomenon anymore.

Richard Lodge, chief investment officer
Bank One Corp.
The Wall Street Journal, February 10, 1993, p. B4

Financial innovations have not changed the substance of banking. The core functions of banking remain the measurement, acceptance and management of risk.

Alan Greenspan, chairman
Federal Reserve Board
Federal Reserve Board of Chicago Conference on Bank Structure and Competition
May 11, 1995

Let's put your relationship with your derivatives dealer on the proper footing. Before you hire the next one, investigate him as you would anyone you don't trust but desperately need, such as, oh, the nanny. Xerox the dealer's driver's license as the first item in the background file. Knowing his home address will be comforting to you and worrying to him. Then run a felony check. Hey, his boss did it when she hired him. Verify every achievement on his resumé including how many semesters he made Dean's list. Discuss any discrepancies.

Maile Hulihan, editor-in-chief
Treasury and Risk Management, July-August, 1995, p. 2

I once had to explain to my father that a bank didn't really make its money taking deposits and lending out money to poor folk so they could build houses. I explained that the bank actually traded for a living.

Stan Jonas
Derivatives Strategy, April, 1998, p. 19

Banks have used quantitative methods since the Medicis, but their ability today to aggregate risk information meaningfully across a variety of activities is unprecedented.

Eric Falkenstein, Sr. VP, Key Corp.
Enterprise Wide Risk Management
November, 1998, p. 25

Derivatives are part of the vital machinery of the bank. We have put it at the heart of the business.

Saman Majd, Global Head of OTC Derivatives
Deutsche Bank
Risk, May, 1999, p. 36
 
But control is an elusive goal when banking activities have so many dimensions and when each trading operation and each new instrument offers its own secret passageway to the bank vault.
 
John Marthinsen
Risk Takers:  Users and Abusers of Derivatives
2005, p. 215
 

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Last updated:  January 9, 2011