The study examines the financial and regulatory factors that influenced the extent of derivative activity at twenty-five large international dealer banks during the 1995-1997 period. The findings indicate that their derivative activity is directly related to the size of the bank's capital ratio, asset size, maturity gap, and credit rating, but inversely related to bank profitability. The greater the opportunity for commercial banks to pursue investment banking activities the less incentive they have to expand their level of derivative activity. Banks that are allowed to make direct investment in industrial firms appear to have more opportunities to cross-sell various types of derivatives, such as swaps.