On the effects of banks’ equity ownership on credit markets : an antitrust perspective on the Glass-Steagall act
AbstractRecent U.S. legislation (Gramm-Leach-Bliley Act) allows commercial banks to enter merchant banking, i.e. hold equity in non-financial firms. A stylised auction-theoretic model is developed to investigate the effects of bank equity stakes in firms on the competition in bank loans. The main finding is that the largest stake confers a competitive advantage to the holding bank and constitutes a barrier to entry in equity acquisition, resulting in high interest rates charged to firms. This finding unearths an antitrust dimension in the controversial debate on the separation of banking and commerce in the U.S., and provides a theoretical basis for recent empirical evidence on the relationship between bank equity holdings and the cost of debt finance in Germany and Japan.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004038.
Date of creation: 00 Jun 2004
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banking and commerce; regulation and antitrust; Glass-Steagall act; Gramm-Leach-Bliley act; auctions;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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