AUGUST 22, 2016
FMS Quick Poll: Using Derivatives to Manage Interest Rate Risk
By Financial Managers Society

For our latest FMS Quick Poll, we decided to revisit a polling question that we last took to the membership almost three years ago, asking how many of our member institutions are using derivatives to help manage their interest rate risk and, if so, what types of strategies they’re employing.

Given the fact that only 90 individuals participated in the 2013 version of this poll – compared to well over 200 this time around – any apples-to-apples comparison of the results would be somewhat skewed. However, the general notion one can draw is that not much has changed – for the most part, FMS members still aren’t diving into derivatives.

Of the 236 respondents in the current poll, only 16% are currently using derivatives, with another 23% indicating that while they’re not doing so now, they are considering it (see Figure I). The remaining 61% of poll participants aren’t using derivatives now and don’t expect to anytime soon.


 In 2013, meanwhile, 23% of respondents were using derivatives and 31% more were considering the possibility, with 45% steering clear altogether (see Figure II).


Back in the present day, the decision to use or not use derivatives was fairly consistent across both banks and credit unions in the current poll, with the exception of those not currently using derivatives but considering them, where 40% of credit unions were thinking about the possibility, compared to only 17% of banks. In terms of asset size, the poll shows that in general, the larger the institution, the more likely it is to be using or considering using derivatives to manage interest rate risk (see Figure III).


 In terms of which derivatives strategies FMS members are utilizing, interest rate swaps stood out as by far the most popular choice, with caps a fairly distant second (see Figure IV). These results, too, were fairly similar to the strategies members were favoring back in 2013.


Is your institution considering derivatives to manage interest rate risk? If so, why are you moving in that direction? If not, what is holding you back? Share your thoughts on this Quick Poll in the comments section below or on FMS Connect!