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Financial Crises & Financial Derivatives: Government Use of Interest Rate Swaps From 2003 - 2012

Singla, Akheil
http://rave.ohiolink.edu/etdc/view?acc_num=osu1437058804

Abstract Details

2015, Doctor of Philosophy, Ohio State University, Public Policy and Management.
Despite getting coverage in the financial press, government use of financial derivatives such as interest rate swaps remains a fairly understudied area of public financial management research. Indeed, press accounts emphasizing the downside of these transactions are some of the only sources of information on the performance of these instruments. However, while headlines about termination payments totaling hundreds of millions of dollars may generate reader interest, they are far from systematic evaluations of these instruments. This research aims to remedy this situation by exploring how governments are using these instruments, the contexts in which these instruments are used, and how to develop systems that evaluate the use of these instruments as policy tools. The first chapter of the dissertation works to identify the scope of use of these instruments over a 10 year period. Broadly, it addresses three questions: 1) How did the largest city governments use debt-related derivatives over time? 2) How, if at all, did state and city use of debt-related derivatives differ over time? 3) How did government use of debt-related derivatives evolve over time? It finds that many cities were active participants in the debt-related derivatives markets. Second, it demonstrates that while there were some differences between state and city government use, these do not necessarily appear to be systematic. Third, it suggests that the evolution of use of debt-related derivatives was altered by the Great Recession, as many state and city governments ratcheted up their use of these instruments from 2003 to 2008 only to swiftly exit the market during and after the financial crisis. The second chapter builds on the analysis and data from the first chapter to explore the following question: What are the motivating factors for city governments choosing to use debt-related derivative instruments? It does so by using the data gathered and presented from the previous chapter in concert with additional data from city government Comprehensive Annual Financial Reports to examine the relationship between new use of debt-related derivatives and other characteristics of governments. The chapter finds that the characteristics of government most associated with new debt-related derivative use are size (as measured by total assets) and prior use of the agreements, with external market conditions also being an important factor. The third chapter takes a different approach than the first two chapters, instead discussing a framework for evaluating individual debt-related derivative transactions. The chapter leverages an extensive evaluation conducted by The Chicago Tribune, both as a lens for what to do, and as a means to identify additional areas for analysis. In sum, the chapter describes a method by which financial managers and policy makers alike can evaluate whether the instruments saved money in the long run and whether the decisions to use the instruments made sense at the time the decisions were made.
Charlotte Kirschner (Advisor)
Greenbaum Robert (Committee Member)
Brown Trevor (Committee Member)
Martin Luby (Committee Member)
Public Administration; Public Policy
Interest rate swaps; derivatives; financial management; municipal bonds

Recommended Citations

Citations

  • Singla, A. (2015). Financial Crises & Financial Derivatives: Government Use of Interest Rate Swaps From 2003 - 2012 [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1437058804

    APA Style (7th edition)

  • Singla, Akheil. Financial Crises & Financial Derivatives: Government Use of Interest Rate Swaps From 2003 - 2012. 2015. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1437058804.

    MLA Style (8th edition)

  • Singla, Akheil. "Financial Crises & Financial Derivatives: Government Use of Interest Rate Swaps From 2003 - 2012." Doctoral dissertation, Ohio State University, 2015. http://rave.ohiolink.edu/etdc/view?acc_num=osu1437058804

    Chicago Manual of Style (17th edition)

osu1437058804
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This open access ETD is published by The Ohio State University and OhioLINK.