Use and Motivations for Credit Derivatives: An Empirical Investigation on Italian Banks

Focusing on a sample of Italian banks during 2005-2011, we aim to provide answers to three research questions: i) how much do Italian banks use CD?; ii) what are the differences between user and non-user banks?; iii) why do banks use CD? We find that only a small number of banks use of CD, and that the use of CD increases till 2007. Significant differences emerge between users and non-users in their risk and capitalization measures, attitude/expertise in hedging activity, and profitability. Large, listed and commercial banks are more likely to use CD. Our results seem not to support the hedging hypothesis in general. Findings of the separate estimates for small/large banks and for listed/unlisted banks show that the probability of using CD varies when different sub-samples are considered, and that results for larger and listed banks tend to confirm the results of the main regressions on the entire sample. Finally, relevant differences emerge between the pre and the post-crisis period.