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Did Banks' Security Affiliates Add Value? Evidence from the Commercial Banking Industry during the 1920s

  • Ramirez, Carlos D

This paper finds that banks' security affiliates added 4% to 7% to the market value of commercial banks in 1926 and 1927. This result is robust to the inclusion of a large array of control variables, including risk, regulatory environment, and financial health variables such as the capital-asset ratio and profitability measures. Bank size explains about 40% of this premium, thus suggesting that economies of scale were present. The remaining 60% of the premium most likely came from economies of scope. This result implies that the Glass-Steagall Act, by disallowing banks' involvement in the securities industry, had a direct cost in lost market value for the commercial banking industry.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 34 (2002)
Issue (Month): 2 (May)
Pages: 393-411

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Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:2:p:393-411
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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