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The separation of banking and commerce

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Author Info

  • John Krainer

Abstract

In the wake of the passage of the Gramm-Leach-Bliley Act, the separation of banking from commercial activity is now one of the few remaining pieces of Depression-era banking law. In this article I explore the incentives that banks and commercial firms might have to affiliate. I also outline some of the reasons why legislators might be hesitant to permit such affiliations.

(This abstract was borrowed from another version of this item.)

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File URL: http://www.frbsf.org/econrsrch/wklyltr/wklyltr98/el98-21.html
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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.

Volume (Year): (1998)
Issue (Month): jul3 ()
Pages:

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Handle: RePEc:fip:fedfel:y:1998:i:jul3:n:98-21

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Keywords: Investment banking ; Banks and banking - History ; Banking Act of 1933;

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References

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  1. Mitchell Berlin & Kose John & Anthony Saunders, 1995. "Bank equity stakes in borrowing firms and financial distress," Working Papers 96-1, Federal Reserve Bank of Philadelphia.
  2. Loretta J. Mester, 1992. "Banking and commerce: a dangerous liaison?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 17-29.
  3. João Cabral dos Santos, 1995. "Debt and equity as optimal contracts," Working Paper 9505, Federal Reserve Bank of Cleveland.
  4. Kang, Jun-Koo & Stulz, Rene M, 2000. "Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience," The Journal of Business, University of Chicago Press, vol. 73(1), pages 1-23, January.
  5. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  6. Randall S. Kroszner & Philip E. Strahan, 1998. "Bankers on boards: monitoring, financing, and lender liability," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  7. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  8. E. Gerald Corrigan, 1987. "A framework for reform of the financial system," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 1-8.
  9. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
  10. John H. Boyd & Chun Chang & Bruce D. Smith, 1998. "Moral hazard under commercial and universal banking," Working Papers 585, Federal Reserve Bank of Minneapolis.
  11. Saunders, Anthony, 1994. "Banking and commerce: An overview of the public policy issues," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 231-254, January.
  12. James, Christopher, 1995. "When Do Banks Take Equity in Debt Restructurings?," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1209-34.
  13. Hannan, Timothy H. & Liang, J. Nellie, 1993. "Inferring market power from time-series data : The case of the banking firm," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 205-218, June.
  14. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
  15. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
  16. Randall J. Pozdena, 1991. "Why banks need commerce powers," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 18-31.
  17. Loretta J. Mester, 1987. "Efficient production of financial services: scale and scope economies," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 15-25.
  18. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
  19. Gary Gorton & Frank A. Schmid, 1996. "Universal Banking and the Performance of German Firms," NBER Working Papers 5453, National Bureau of Economic Research, Inc.
  20. John Beauchamp & John Krainer, 1999. "Small business lending patterns in California," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan22.
  21. Bester,Helmut Hellwig,Martin, 1987. "Moral hazard and equilibrium credit rationing: An overview of the issues," Discussion Paper Serie A 125, University of Bonn, Germany.
  22. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  23. Simon H. Kwan & James A. Wilcox, 1999. "Hidden cost reductions in bank mergers: accounting for more productive banks," Working Papers in Applied Economic Theory 99-10, Federal Reserve Bank of San Francisco.
  24. Kindleberger, Charles P., 1993. "A Financial History of Western Europe," OUP Catalogue, Oxford University Press, edition 2, number 9780195077384.
  25. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-87, September.
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Citations

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Cited by:
  1. Sanjay Banerji & Andrew Chen & Sumon Mazumdar, 2002. "Universal Banking Under Bilateral Information Asymmetry," Journal of Financial Services Research, Springer, vol. 22(3), pages 169-187, December.
  2. John R. Walter, 2003. "Banking and commerce : tear down this wall?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 7-31.
  3. Stefan ARPING, 2002. "Banking, Commerce, and Antitrust¤," FAME Research Paper Series rp19, International Center for Financial Asset Management and Engineering.
  4. Larry D. Wall & Alan K. Reichert & Hsin-Yu Liang, 2008. "The final frontier : the integration of banking and commerce. Part 1, the likely outcome of eliminating the barrier," Economic Review, Federal Reserve Bank of Atlanta.

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