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The determinants of the wealth effects of banks' expanded securities powers

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Author Info
David P. Ely
Kenneth J. Robinson
Abstract

After several unsuccessful attempts by Congress to repeal Glass-Steagall restrictions on banks, the Federal Reserve more than doubled the revenue that commercial banking organizations' securities subsidiaries may earn from certain securities activities. The wealth effects associated with this event for a sample of publicly traded banking organizations are examined. We find evidence that indicates the revenue limit resulted in a less-than-optimal mix of activities for securities subsidiaries. However, subsequent merger activity that could have been generated by the revenue increase was not viewed favorably by investors.

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File URL: http://www.dallasfed.org/banking/fiswp/fiswp9901.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Financial Industry Studies Working Paper with number 99-1.

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Date of creation: 1999
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Handle: RePEc:fip:feddfi:99-1

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Keywords: Securities

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  1. Larry D. Wall & Alan K. Reichert & Sunil Mohanty, 1993. "Deregulation and the opportunities for commercial bank diversification," Economic Review, Federal Reserve Bank of Atlanta, issue Sep, pages 1-25.
  2. Rodney T. Smith & Michael Bradley & Greg Jarrell, 1986. "Studying Firm-Specific Effects of Regulation with Stock Market Data: An Application to Oil Price Regulation," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 467-489, Winter. [Downloadable!] (restricted)
  3. Puri, Manju, 1994. "The long-term default performance of bank underwritten security issues," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 397-418, January. [Downloadable!] (restricted)
  4. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer. [Downloadable!] (restricted)
  5. John H. Boyd & Stanley L. Graham, 1986. "Risk, regulation, and bank holding company expansion into nonbanking," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-17. [Downloadable!]
  6. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April. [Downloadable!] (restricted)
  7. White, Eugene Nelson, 1986. "Before the Glass-Steagall Act: An analysis of the investment banking activities of national banks," Explorations in Economic History, Elsevier, vol. 23(1), pages 33-55, January. [Downloadable!] (restricted)
  8. Loretta J. Mester, 1996. "Repealing Glass-Steagall: the past points the way to the future," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 3-18. [Downloadable!]
  9. Puri, Manju, 1996. "Commercial banks in investment banking Conflict of interest or certification role?," Journal of Financial Economics, Elsevier, vol. 40(3), pages 373-401, March. [Downloadable!] (restricted)
  10. John H. Boyd & Stanley L. Graham, 1988. "The profitability and risk effects of allowing bank holding companies to merge with other financial firms: a simulation study," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-20. [Downloadable!]
  11. John H. Boyd & Stanley L. Graham, 1988. "The profitability and risk effects of allowing bank holding companies to merge with other financial firms: a simulation study," Proceedings, Federal Reserve Bank of Chicago, pages 476-514.
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