Universal Banking Deregulation and Firms Choices of Lender and Equity Underwriter

Parthasarathy, Harini

doi:10.2139/ssrn.1051262

Cited by 4 publications

(4 citation statements)

References 86 publications

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“…The prediction about the choice of underwriter by rated and non-rated firms is consistent with recent empirical evidence by Parthasarathy (2007), who finds that when choosing an equity underwriter, unrated firms value specialized skills in the lending and underwriting business and only infrequently choose cross-selling, compared to rated firms.…”

Section: Empirical Implicationssupporting

confidence: 86%

Cross-Selling Lending and Underwriting: Scope Economies and Incentives

Laux

Walz

2008

SSRN Journal

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Abstract.We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters' incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank's clients. In our model, cross-selling reduces rents in the underwriting business. JEL Classification: G21, G24, D49 "Perhaps it was not such a bright idea to offer credit to investment-banking clients at lessthan-market rates-even though this has been a chief

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Section: Empirical Implicationssupporting

confidence: 86%

Cross-Selling Lending and Underwriting: Scope Economies and Incentives

Laux

Walz

2008

SSRN Journal

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“…This is why global banks like JPMorgan Chase are able to offer significant value added by bundling financial services with lending. The total value of these services is what attracts large firms to global banks, as the evidence in Parthasarathy (2007) confirms. As much as one-stop banking may remain an elusive concept on the retail banking side, it is a model that appears to be working on the corporate and investment banking side (at least for the largest corporations), as the study by Parthasarathy (2007) suggests.…”

Section: The Future Of Bankingmentioning

confidence: 86%

The Good Banker

Bolton¹,

Glaeser²,

Gordon³

et al. 2017

After the Flood

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What is the economic value added of banks? The economics literature on financial intermediation focuses on the role of banks as deposit-taking institutions and as delegated monitors of borrowers. But this description barely begins to represent what banks do in a modern economy. Besides commercial lending, large banks are engaged in a number of other activities ranging from cash management, trade credit, swaps and derivatives trading, to underwriting of securities. In recent decades, banks have relied increasingly on fee income generated from their activities other than lending. The financial crisis, and the concerns about "too-big-to-fail" banks it has exposed, has led to a re-evaluation of the economic benefits of banks' non-lending activities. Do these provide economic benefits, or are they simply an undesirable side-product of deregulation? This article focuses on this question and examines how the new financial regulations introduced after the crisis deal with this central question.

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“…Houston and James (1996) show that the presence of public debt mitigates adverse selection and hold‐up costs. Parthasarathy (2007) proxies firm opaqueness with a combination of rating and size. To indicate the presence of public debt, we use an indicator variable.…”

Section: Methodsmentioning

confidence: 99%

“…While these studies sample firms that access public markets for their funding needs, smaller firms may be especially vulnerable to shrinkage in the number of competitors vying for their funding business. Parthasarathy (2007) finds that smaller, unrated firms have not benefited from expanded bank powers, choosing to rely on geographically proximate lenders for their funding needs. Diamond (1993) argues that, in distress, firms that have few funding outlets face a threat of inefficient liquidation.…”

Section: Financial Modernization and Customer Welfarementioning

confidence: 99%

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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Universal Banking Deregulation and Firms Choices of Lender and Equity Underwriter

Cited by 4 publications

References 86 publications

Cross-Selling Lending and Underwriting: Scope Economies and Incentives

Cross-Selling Lending and Underwriting: Scope Economies and Incentives

The Good Banker

Safety‐Net Losses from Abandoning Glass–Steagall Restrictions

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