How Much Do Banks Use Credit Derivatives to Reduce Risk?

This paper examines the use of credit derivatives by US bank holding companies from 1999 to 2003 with assets in excess of one billion dollars. Using the Federal Reserve Bank of Chicago Bank Holding Company Database, we find that in 2003 only 19 large banks out of 345 use credit derivatives. Though few banks use credit derivatives, the assets of these banks represent on average two thirds of the assets of bank holding companies with assets in excess of $1 billion. Few banks are net buyers of credit protection and disclose using credit derivatives to hedge loans. Banks are more likely to be net protection buyers if they engage in asset securitization, originate foreign loans, and have lower capital ratios. The likelihood of a bank being a net protection buyer is positively related to the percentage of commercial and industrial loans in a bank's loan portfolio and negatively or not related to other types of bank loans. The use of credit derivatives by banks is limited because adverse selection and moral hazard problems make the market for credit derivatives illiquid for the typical credit exposures of banks.

The Impact of Cash Flow Volatility on Discretionary Investment and the Costs of Debt and Equity Financing

We show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures, R&D, and advertising. This association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment. Cash flow volatility also is associated with higher costs of accessing external capital. Moreover, these higher costs, as measured by some proxies, imply a greater sensitivity of investment to cash flow volatility. Thus, cash flow volatility not only increases the likelihood that a firm will need to access capital markets, it also increases the costs of doing so

Institutional Investments in Pure Play Stocks and Implications for Hedging Decisions

We show that institutions invest in stocks within an industry that maintain exposure to their underlying industry risk factor. These pure play stocks have greater numbers ofinstitutional investors and institutions systematically overweight them in their portfolios while underweighting low industry-exposure stocks of firms in the same nominal industry.Pure play stocks also have greater liquidity measured by stock turnover and price impact. An implication of these results is that catering to these preferences could be an important variable in firms\u27 risk management decisions, potentially offsetting incentives to reduce volatility via hedging. We further characterize institutions\u27 investments for pureplay stocks across institution type, industries, and over time

Why Firms Use Currency Derivatives

We examine the use of currency derivatives in order to differentiate among existing theories of hedging behavior. Firms with greater growth opportunities and tighter financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to reduce cash flow variation that might otherwise preclude firms from investing in valuable growth opportunities. Firms with extensive foreign exchange-rate exposure and economies of scale in hedging activities are also more likely to use currency derivatives. Finally, the source of foreign exchange-rate exposure is an important factor in the choice among types of currency derivatives

Adjunctive rifampicin to reduce early mortality from Staphylococcus aureus bacteraemia: the ARREST RCT.

BACKGROUND: Staphylococcus aureus bacteraemia is a common and frequently fatal infection. Adjunctive rifampicin may enhance early S. aureus killing, sterilise infected foci and blood faster, and thereby reduce the risk of dissemination, metastatic infection and death. OBJECTIVES: To determine whether or not adjunctive rifampicin reduces bacteriological (microbiologically confirmed) failure/recurrence or death through 12 weeks from randomisation. Secondary objectives included evaluating the impact of rifampicin on all-cause mortality, clinically defined failure/recurrence or death, toxicity, resistance emergence, and duration of bacteraemia; and assessing the cost-effectiveness of rifampicin. DESIGN: Parallel-group, randomised (1 : 1), blinded, placebo-controlled multicentre trial. SETTING: UK NHS trust hospitals. PARTICIPANTS: Adult inpatients (≥ 18 years) with meticillin-resistant or susceptible S. aureus grown from one or more blood cultures, who had received < 96 hours of antibiotic therapy for the current infection, and without contraindications to rifampicin. INTERVENTIONS: Adjunctive rifampicin (600-900 mg/day, oral or intravenous) or placebo for 14 days in addition to standard antibiotic therapy. Investigators and patients were blinded to trial treatment. Follow-up was for 12 weeks (assessments at 3, 7, 10 and 14 days, weekly until discharge and final assessment at 12 weeks post randomisation). MAIN OUTCOME MEASURES: The primary outcome was all-cause bacteriological (microbiologically confirmed) failure/recurrence or death through 12 weeks from randomisation. RESULTS: Between December 2012 and October 2016, 758 eligible participants from 29 UK hospitals were randomised: 370 to rifampicin and 388 to placebo. The median age was 65 years [interquartile range (IQR) 50-76 years]. A total of 485 (64.0%) infections were community acquired and 132 (17.4%) were nosocomial; 47 (6.2%) were caused by meticillin-resistant S. aureus. A total of 301 (39.7%) participants had an initial deep infection focus. Standard antibiotics were given for a median of 29 days (IQR 18-45 days) and 619 (81.7%) participants received flucloxacillin. By 12 weeks, 62 out of 370 (16.8%) patients taking rifampicin versus 71 out of 388 (18.3%) participants taking the placebo experienced bacteriological (microbiologically confirmed) failure/recurrence or died [absolute risk difference -1.4%, 95% confidence interval (CI) -7.0% to 4.3%; hazard ratio 0.96, 95% CI 0.68 to 1.35; p = 0.81]. There were 4 (1.1%) and 5 (1.3%) bacteriological failures (p = 0.82) in the rifampicin and placebo groups, respectively. There were 3 (0.8%) versus 16 (4.1%) bacteriological recurrences (p = 0.01), and 55 (14.9%) versus 50 (12.9%) deaths without bacteriological failure/recurrence (p = 0.30) in the rifampicin and placebo groups, respectively. Over 12 weeks, there was no evidence of differences in clinically defined failure/recurrence/death (p = 0.84), all-cause mortality (p = 0.60), serious (p = 0.17) or grade 3/4 (p = 0.36) adverse events (AEs). However, 63 (17.0%) participants in the rifampicin group versus 39 (10.1%) participants in the placebo group experienced antibiotic or trial drug-modifying AEs (p = 0.004), and 24 (6.5%) participants in the rifampicin group versus 6 (1.5%) participants in the placebo group experienced drug-interactions (p = 0.0005). Evaluation of the costs and health-related quality-of-life impacts revealed that an episode of S. aureus bacteraemia costs an average of £12,197 over 12 weeks. Rifampicin was estimated to save 10% of episode costs (p = 0.14). After adjustment, the effect of rifampicin on total quality-adjusted life-years (QALYs) was positive (0.004 QALYs), but not statistically significant (standard error 0.004 QALYs). CONCLUSIONS: Adjunctive rifampicin provided no overall benefit over standard antibiotic therapy in adults with S. aureus bacteraemia. FUTURE WORK: Given the substantial mortality, other antibiotic combinations or improved source management should be investigated. TRIAL REGISTRATIONS: Current Controlled Trials ISRCTN37666216, EudraCT 2012-000344-10 and Clinical Trials Authorisation 00316/0243/001. FUNDING: This project was funded by the National Institute for Health Research (NIHR) Health Technology Assessment programme and will be published in full in Health Technology Assessment; Vol. 22, No. 59. See the NIHR Journals Library website for further project information.NIHR HTA Programm

Adjunctive rifampicin for Staphylococcus aureus bacteraemia (ARREST): a multicentre, randomised, double-blind, placebo-controlled trial.

BACKGROUND: Staphylococcus aureus bacteraemia is a common cause of severe community-acquired and hospital-acquired infection worldwide. We tested the hypothesis that adjunctive rifampicin would reduce bacteriologically confirmed treatment failure or disease recurrence, or death, by enhancing early S aureus killing, sterilising infected foci and blood faster, and reducing risks of dissemination and metastatic infection. METHODS: In this multicentre, randomised, double-blind, placebo-controlled trial, adults (≥18 years) with S aureus bacteraemia who had received ≤96 h of active antibiotic therapy were recruited from 29 UK hospitals. Patients were randomly assigned (1:1) via a computer-generated sequential randomisation list to receive 2 weeks of adjunctive rifampicin (600 mg or 900 mg per day according to weight, oral or intravenous) versus identical placebo, together with standard antibiotic therapy. Randomisation was stratified by centre. Patients, investigators, and those caring for the patients were masked to group allocation. The primary outcome was time to bacteriologically confirmed treatment failure or disease recurrence, or death (all-cause), from randomisation to 12 weeks, adjudicated by an independent review committee masked to the treatment. Analysis was intention to treat. This trial was registered, number ISRCTN37666216, and is closed to new participants. FINDINGS: Between Dec 10, 2012, and Oct 25, 2016, 758 eligible participants were randomly assigned: 370 to rifampicin and 388 to placebo. 485 (64%) participants had community-acquired S aureus infections, and 132 (17%) had nosocomial S aureus infections. 47 (6%) had meticillin-resistant infections. 301 (40%) participants had an initial deep infection focus. Standard antibiotics were given for 29 (IQR 18-45) days; 619 (82%) participants received flucloxacillin. By week 12, 62 (17%) of participants who received rifampicin versus 71 (18%) who received placebo experienced treatment failure or disease recurrence, or died (absolute risk difference -1·4%, 95% CI -7·0 to 4·3; hazard ratio 0·96, 0·68-1·35, p=0·81). From randomisation to 12 weeks, no evidence of differences in serious (p=0·17) or grade 3-4 (p=0·36) adverse events were observed; however, 63 (17%) participants in the rifampicin group versus 39 (10%) in the placebo group had antibiotic or trial drug-modifying adverse events (p=0·004), and 24 (6%) versus six (2%) had drug interactions (p=0·0005). INTERPRETATION: Adjunctive rifampicin provided no overall benefit over standard antibiotic therapy in adults with S aureus bacteraemia. FUNDING: UK National Institute for Health Research Health Technology Assessment