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We assess the market microstructure properties of U.S. banking firms' equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence strongly indicates that large banks (traded on the NYSE) have very similar trading properties to their matched nonfinancial firms, but smaller banks (traded on NASDAQ) trade much less frequently despite having very similar spreads. We also estimate the impact of portfolio composition on a bank's market microstructure characteristics. Problem (noncurrent) loans tend to raise the frequency with which the bank's equity trades, as well as the equity's return volatility. The implications for regulatory policy and future market microstructure research are discussed.

No abstract

We assess the market microstructure properties of U.S. banking firms' equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence strongly indicates that large banks (traded on the NYSE) have very similar trading properties to their matched nonfinancial firms, but smaller banks (traded on NASDAQ) trade much less frequently despite having very similar spreads. We also estimate the impact of portfolio composition on a bank's market microstructure characteristics. Problem (noncurrent) loans tend to raise the frequency with which the bank's equity trades, as well as the equity's return volatility. The implications for regulatory policy and future market microstructure research are discussed.