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Cross-Selling Lending and Underwriting: Scope Economies and Incentives

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  • Christian Laux
  • Uwe Walz

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. Copyright 2009, Oxford University Press.

Suggested Citation

  • Christian Laux & Uwe Walz, 2009. "Cross-Selling Lending and Underwriting: Scope Economies and Incentives," Review of Finance, European Finance Association, vol. 13(2), pages 341-367.
    • Handle: RePEc:oup:revfin:v:13:y:2009:i:2:p:341-367
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    File URL: http://hdl.handle.net/10.1093/rof/rfn027
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    Cited by:

    1. Grupp, Marcel, 2015. "Taking the lead: When non-banks arrange syndicated loans," SAFE Working Paper Series 100, Leibniz Institute for Financial Research SAFE.
    2. Choi, Jay Pil & Stefanadis, Christodoulos, 2015. "Monitoring, cross subsidies, and universal banking," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 48-55.
    3. Zhao, Tianshu & Matthews, Kent & Murinde, Victor, 2013. "Cross-selling, switching costs and imperfect competition in British banks," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5452-5462.
    4. Chavaz, Matthieu & Elliott, David, 2020. "Separating retail and investment banking: evidence from the UK," Bank of England working papers 892, Bank of England, revised 18 Feb 2021.
    5. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2021. "Non-pricing drivers of underwriters’ market shares in corporate bond markets," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 671-693.
    6. Stefano Colonnello, 2022. "The Real Effects of Universal Banking: Does Access to the Public Debt Market Matter?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(1), pages 77-110, February.

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