Are Universal Banks Better Underwriters? Evidence from the Last Days of the Glass-Steagall Act

Focarelli,; Dario,; Marques-Ibanez,; Crowther, David; Pozzolo,; Alberto, Fabio

doi:10.2139/ssrn.1573177

Cited by 9 publications

(6 citation statements)

References 49 publications

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“…Beforehand, influential studies had documented that the danger stemming from conflicts of interest in universal banks had been overestimated in the 1920s (Kroszner/Rajan (1994), White (1986)). Studies on the period after 1987, when important deregulation measures were taken, reach similar conclusions (e.g., Gande et al (1997), Gande et al (1999), Mullineaux (2002), Focarelli et al (2011)). …”

Section: Introductionmentioning

confidence: 55%

Do We Need a Separate Banking System? An Assessment

Lang¹,

Schröder²

2013

CCM

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical summary

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Section: Introductionmentioning

confidence: 55%

Do We Need a Separate Banking System? An Assessment

Lang¹,

Schröder²

2013

CCM

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“…Shivdasani and Song (2011) find that increased competition in underwriting reduced the incentive for underwriters to produce new information about issuer quality, resulting in more poor‐quality issues being brought to market. Consistent with reduced screening incentives, Focarelli, Marques‐Ibanez, and Pozzolo (2011) find that bond issues underwritten by universal banks had higher default rates than those underwritten by stand‐alone banks.…”

Section: Financial Modernization and Customer Welfarementioning

confidence: 70%

Safety‐Net Losses from Abandoning Glass–Steagall Restrictions

Carow

Kane

Narayanan

2011

J of Money Credit Banking

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This paper evaluates the redistribution of gains surrounding regulatory relaxations in 1996 and 1997 and ultimate passage of the Financial Services Modernization Act (FSMA) of 1999. Gains in financial institution stocks may come from projected increases in efficiency, increases in the bargaining power of financial institutions, or greater access to the federal safety net. For customers seeking improved access to capital markets, gains in efficiency should result in increased benefits, but increases in bank bargaining power could increase funding costs and/or decrease capital market access. Customers may also lose as taxpayers who support the federal safety net. This paper finds evidence of potential taxpayer losses and increased bank bargaining power, especially vis‐à‐vis credit‐constrained customers for whom safety‐net subsidies are unlikely to be shifted forward. The stock prices of credit‐constrained customers declined during FSMA event windows and in event windows associated with regulatory relaxations.

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“…Indeed, in most cases the objective was more to understand the effects of bank diversification on risk taking or lending activities, rather than the consequences for shareholder value. For example, in the thriving strand of literature that has originated from the repeal of the Glass-Steagall Act in the U.S. in 1999, the maintained assumption is that commercial banks diversify their activities into investment banking because they find it profitable, while the focus is in ascertaining the presence of conflicts of interest coming from the coexistence of investment and commercial banking activities within the same company (Kroszner and Rajan, 1994;Puri, 1996;Focarelli et al, 2010 More interesting results for the debate on focus versus diversification come from the rich strand of empirical literature that has studied the effects of bank M&As, mostly pointing towards a significant diversification discount. Product and geographically focused mergers increase overall efficiency (Cornett et al, 2006;Altunbas and Marqués-Ibanez, 2008) while diversifying deals often have a negative impact.…”

Section: Related Literaturementioning

confidence: 99%

Do Multinational Banks Create or Destroy Economic Value?

Gulamhussen¹,

Pinheiro²,

Pozzolo

2010

SSRN Journal

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Multinational banks are a distinctive feature of today's globalized economy, with some institutions now operating in more than 100 countries. Despite the thorough analyses of bank internationalization over the last decades, the literature has failed to provide clear evidence that crossborder expansion is a profitable process from a firm's perspective. Following the long tradition of the analyses of the costs and benefits of focusing or diversifying the activities of a firm, in this paper we provide an answer to the question of whether bank cross-border diversification is value enhancing, comparing the value of internationally diversified commercial banks with that of more domestically focused intermediaries. Adapting the methodology of Laeven and Levine (2007), we measure a bank's excess value as the difference between its Tobin's q and the benchmark of multinational banks, and relate it to the degree of international diversification of its activities. In a large sample of more than 500 banks from 56 countries between 2001 and 2007, we find evidence of a statistically and economically significant diversification premium, that is robust to the use of different definitions of diversification, to the possible effects of outliers, and to controlling for potential endogeneity problems. Our results shown that the benefits of scale and scope economies generated by multinational banks more than offset the typical agency costs of managing larger and more complex companies, thus providing a strong rationale for the rapid growth in banks' international activities during the last couple of decades.

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Are Universal Banks Better Underwriters? Evidence from the Last Days of the Glass-Steagall Act

Abstract: 4Non-technical summary 5

Cited by 9 publications

References 49 publications

Do We Need a Separate Banking System? An Assessment

Do We Need a Separate Banking System? An Assessment

Safety‐Net Losses from Abandoning Glass–Steagall Restrictions

Do Multinational Banks Create or Destroy Economic Value?

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