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Using data that cover a full business cycle, this paper documents a direct relationship between interest-rate derivative usage by U.S. banks and growth in their commercial and industrial (C&I) loan portfolios. This positive association holds for interest-rate options contracts, forward contracts, and futures contracts. This result is consistent with the implication of Diamond's model (1984) that predicts that a bank's use of derivatives permits better management of systematic risk exposure,doi:10.5430/ijfr.v8n4p23 fatcat:o2xo6igryveo7hdslvqlwmqkzy