Interest rate swaps are a true financial innovation that can reduce the risk of financial distress and promote increased investment, economist Anatoli Kuprianov wrote in the summer edition of the Federal Reserve Bank of Richmond's Economic Quarterly.
Mr. Kuprianov wrote that, because swaps allow companies to manage interest rate risks, businesses are more willing to invest money in projects. This boosts the financing of capital investment, he wrote.
He said recent public distress over the use of swaps is misconceived.
"Based on the results of recent research," Mr. Kuprianov wrote, "it appears that interest rate swaps have helped firms to weather the uncertainties of volatile financial markets by reducing default risk and facilitating increased productive investment."