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Banks venture into new territory

  • Kenneth J. Robinson

Financial modernization legislation passed in 1999 allows banking organizations to directly invest in any type of company. This merchant banking authority gives banks greater opportunities to provide venture capital to start-up companies and later-stage equity financing to more mature firms. Kenneth Robinson examines how banks have pursued their new merchant banking powers. Robinson finds evidence that organizations that engage in merchant banking tend to be larger than those that do not. His findings are also consistent with the hypothesis that banks may be attempting to lower their average costs by combining merchant banking with other nonbank activities. Allowing banking organizations to pursue this new activity will provide them with an additional source of earnings and greater diversification opportunities and will likely increase private equity financing, which has been a vital component of economic activity.

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File URL: http://dallasfed.org/assets/documents/research/efpr/v01_n02_a01.pdf
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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (2002)
Issue (Month): ()
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Handle: RePEc:fip:fedder:y:2002:n:v.1no.2
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  1. Hellmann, Thomas F. & Puri, Manju, 2000. "Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence," Research Papers 1661, Stanford University, Graduate School of Business.
  2. 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.
  3. Shull, Bernard, 1994. "Banking and commerce in the United States," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 255-270, January.
  4. Prowse, Stephen, 1998. "Angel investors and the market for angel investments," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 785-792, August.
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