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The Wealth and Risk Effects of the Gramm-Leach-Bliley Act (GLBA) on the US Banking Industry

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Author Info

  • Abdullah Mamun
  • M. Kabir Hassan
  • Neal Maroney

Abstract

The Gramm-Leach-Bliley Act (GLBA) of 1999 marks the end of Depression era regulations like the Glass-Steagall Act of 1933 and Bank Holding Company Act of 1956. These acts have restricted banks from securities and insurance underwriting business. This paper examines the impact of the GLBA on the banking industry. We find that the banking industry has a welfare gain from this law. We investigate two different categorizations of the banking industry. We find that Money Center banks followed by the Super Regional banks benefited most from this deregulation. On the other hand, banks that had Section 20 investment subsidiaries gained more than other banks in the second category. The results also show that the exposure to systematic risk for different categories of banks decreased after the passage of this law, which implies that the GLBA is fairly successful in containing the risk that accompanied the act and also created diversification opportunities. For Money Center banks, Super Regional Banks, banks with a section 20 subsidiary and banks with a new financial subsidiary, a shift in the exposure to systematic risk can explain the overall cross sectional variation in return from the deregulation. In both categorizations we find that larger banks gained more, while the overall explanatory power of profitability is not conclusive. Copyright Blackwell Publishers Ltd, 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

Volume (Year): 32 (2005-01)
Issue (Month): 1-2 ()
Pages: 351-388

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Handle: RePEc:bla:jbfnac:v:32:y:2005-01:i:1-2:p:351-388

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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Cited by:
  1. Filson, Darren & Olfati, Saman, 2014. "The impacts of Gramm–Leach–Bliley bank diversification on value and risk," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 209-221.
  2. Akhigbe, Aigbe & Martin, Anna D., 2008. "Influence of disclosure and governance on risk of US financial services firms following Sarbanes-Oxley," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2124-2135, October.

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