Nonfinancial firms that use interest rate swaps are compared with nonusers for the years 1991, 1993, and 1995. Swap use grew from 6% of all firms in 1991 to 8% in 1995. Nonfinancial firms use fixed rate payer swaps more often than floating rate payer swaps. Firms that use swaps are significantly larger and have a higher debt to equity ratio relative to nonusers. Fixed rate payers receive a ratings' upgrade significantly more often than floating rate payers and experience a significantly higher percentage increase in net sales in the year of swap initiation relative to floating rate payers and the industry average. Floating rate payers have a significantly higher S&P bond rating relative to the industry average. The test results lend support to the information asymmetry theory of swap usage [Titman, S., 1992. Interest rate swaps and corporate financing choices, Journal of Finance 47, pp. 1503–1516] and lend some support to the asset substitution portion of the agency cost theory of swap usage [Wall, L.D., 1989. Interest rate swaps in an agency theoretic model with uncertain interest rates. Journal of Banking and Finance 13, pp. 261–270].

Banks in the US have been competing with investment banks through newly created “Section 20” subsidiaries. The evidence to date suggests that banks entry into securities activities via these subsidiaries has been pro-competitive. Recently, however, banks have been allowed to enter securities activities via acquisitions. This may not result in the same competitive effects as “new bank” entry.

This study investigates bank consolidation and safety-net support provision in Canada, the UK and the US over a 100-year historical period, and the impact of these policy variables on bank capital and risk-taking choices. The study finds that consolidation and strengthened safety nets have largely supplanted the historical role of high bank capital levels in providing protection to risk-adverse depositors. Furthermore, despite strengthened safety-net guarantees, the study finds that bank asset-risk choices in the 1980s are comparable to those observed in the 1890s, while bank equity volatilities have shown approximately a 10-fold increase over this period. Finally, the study finds that bank capital ratios are as asset-risk sensitive in the 1980s as those in the 1890s, perhaps reflecting residual market discipline or regulatory moral-suasion effects.