How much do bank trust departments use derivatives?

Block, Stanley B.; Gallagher, Timothy J.

doi:10.3905/jpm.1988.409182

Cited by 3 publications

(1 citation statement)

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“…Her finding is consistent with the hypothesis that bank managers are subject to the strictest prudence standards when they are more sensitive to prudent-man rule by investing on behalf of private trust and pension plan clients [6]. A number of survey studies, including Longstreth (1986), Block andGallagher (1988) andO'Barr andConley (1992), support this conjecture: a positive relation between institutional ownership and the prudence of a security. The fact that banks hold equity of their parent BHCs in their trust departments may raise several concerns, including conflict of interest and self-dealing.…”

Section: Literature Review 21 Determinants Of Institutional Ownershipsupporting

confidence: 63%

Subsidiary ownership decisions by bank holding companies

Chiou

2019

JFEP

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Purpose This study aims to examine the intertemporal changes in the institutional ownership of publicly traded bank holding companies (BHCs) in the USA. The role of owned-subsidiary investing in the portfolio decisions is investigated as compared to unaffiliated banks and non-bank institutional investors. Design/methodology/approach The authors apply panel regressions that control bank-fixed and time-fixed effects to study the impact of prudence, liquidity, information advantages and historical returns on each type of the institutional ownership from 1986 to 2014. Findings The subsidiary banks tend to invest in more shares of their parent BHCs when they are traded for a short period of time and when they have low-market risk, low turnover, a low capital equity ratio and great reliance on off-balance activities. However, the impact of these determinants of institutional ownership is opposite for unaffiliated banks and non-bank institutions. Research limitations/implications This study provides evidence that the criteria used by subsidiary banks to invest in their parent company stock are different than the unaffiliated banks and non-bank institutions, raising concerns about the owned-subsidiary investing activities and banks’ trustees’ duty to work in the best interest of their trust clients. Originality/value This paper provides a comprehensive analysis of the level and market value of BHC institutional ownership over the past three decades and the impact of different determinants on the ownership of BHCs by subsidiary banks, unaffiliated banks and non-bank institutional investors.

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Section: Literature Review 21 Determinants Of Institutional Ownershipsupporting

confidence: 63%