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The separation of banking and commerce

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.

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File URL: http://www.frbsf.org/economic-research/publications/2000/article2-4.pdf
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Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (2000)
Issue (Month): ()
Pages: 15-24

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Handle: RePEc:fip:fedfer:y:2000:p:15-24:n:2000
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  1. John H. Boyd & Chun Chang & Bruce D. Smith, 1998. "Moral hazard under commercial and universal banking," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 426-471.
  2. 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.
  3. 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.
  4. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  5. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  6. Loretta J. Mester, 1992. "Banking and commerce: a dangerous liaison?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 17-29.
  7. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  8. João Cabral dos Santos, 1995. "Debt and equity as optimal contracts," Working Paper 9505, Federal Reserve Bank of Cleveland.
  9. Kindleberger, Charles P., 1993. "A Financial History of Western Europe," OUP Catalogue, Oxford University Press, edition 2, number 9780195077384, March.
  10. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
  11. Simon H. Kwan & James A. Wilcox, 1999. "Hidden cost reductions in bank mergers: accounting for more productive banks," Proceedings 621, Federal Reserve Bank of Chicago.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. Randall J. Pozdena, 1991. "Why banks need commerce powers," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 18-31.
  17. 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.
  18. 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.
  19. 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.
  20. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
  21. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  22. John Beauchamp & John Krainer, 1999. "Small business lending patterns in California," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan22.
  23. Timothy H. Hannan & J. Nellie Liang, 1991. "Inferring market power from time-series data: the case of the banking firm," Finance and Economics Discussion Series 147, Board of Governors of the Federal Reserve System (U.S.).
  24. Randall S. Kroszner & Philip E. Strahan, 1998. "Bankers on boards: monitoring, financing, and lender liability," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  25. 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.
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