تنزل قانون گلاس استیگ اول؛ برندگان و بازندگان در صنعت بانکداری

This paper studies stock price reaction to increased investment banking powers for commercial banks using Seemingly Unrelated Regressions. Market participants react favorably to the announcement of increased Section 20 powers to the Glass-Steagall Act both with and without a risk-shift variable. When the sample is split, abnormal returns are significantly higher for Money Center Banks, banks with prior Section 20 subsidiaries, and Large Regional commercial banks as compared to Small Regional banks. Cross sectional analysis suggests that banks with prior Section 20 subsidiaries have higher abnormal returns and Small Regional banks have lower abnormal returns than the average bank in the sample.

This paper studies the effects of increased investment banking powers in the commercial banking industry. Section 20 of the Glass–Steagall Act, as amended on December 20, 1996, allows commercial bank affiliates to underwrite up to 25% of revenue in previously ineligible securities of corporate equity or debt. Commercial banks are tested for overall and differential reaction across groups of banks to increased investment banking powers and share price reaction is compared in cross sectional models. Bhargava and Fraser (1998) study the proposed increase in the Section 20 loophole, along with other prior Section 20 events, and find that the 1996 action had few wealth effects. However, Bhargava and Fraser only studied the market reaction to the initial proposal by the Federal Reserve to increase the loophole to 25% of subsidiary revenue. One of the contributions of this paper is that the interim events and subsequent adoption of the increase in the Section 20 revenue limits is explicitly studied along with the reaction of competing Small Regional banks. Results show that share prices react favorably to the adoption of increased Section 20 powers to the Glass–Steagall Act in models both with and without risk-shift variables. Abnormal returns are significantly higher for Money Center Banks, banks with prior Section 20 subsidiaries, and Large Regional commercial banks as compared to Small Regional banks. Cross sectional analysis shows that banks with prior Section 20 subsidiaries have higher abnormal returns and Small Regional banks have lower abnormal returns than the average bank in the sample.

This paper studies the effects of increased investment banking powers in the commercial banking industry. Section 20 of the Glass–Steagall Act, as amended on December 20, 1996, allows commercial bank affiliates to underwrite up to 25% of revenue in previously ineligible securities of corporate equity or debt. Share price effects to announcements concerning the repeal of Glass–Steagall and the increase in the Section 20 loophole from 10% to 25% of affiliate activity are studied in a SUR model. For all commercial banks collectively in the sample, the effect of reduced prospects for the repeal of Glass–Steagall is negative and significant. The share price reaction to speculation of an increase in the loophole and Chairman Leach trying to bring the bill to repeal Glass–Steagall to a floor vote is also negative and significant for all commercial banks. Abnormal returns for all commercial banks are positive and significant when the Federal Reserve approved the increase in the Section 20 loophole to 25%. These findings suggest that market participants value increased investment banking powers for commercial banks, but they were skeptical of passage of a bill to repeal Glass–Steagall in Congress. The banks are then split into four groups: 1) Money Center banks, 2) banks with prior Section 20 subsidiaries that are not Money Center banks, 3) Large Regional banks defined as those with assets larger than $10 billion, and 4) Small Regional banks defined as those with less than $10 billion in assets. The SUR results for each group show that only Small Regional banks had negative abnormal returns significant at the 5% level when prospects for passage of Glass–Steagall were reduced. All banks except Small Regional banks reacted negatively to the attempt of a floor vote for the repeal of Glass–Steagall, although Section 20 and Large Regionals were significant at only the 10% level. All banks except Small Regionals have a negative reaction to the Goldman Sachs announcement to buy a commercial bank, significant at least the 10% level. All banks except Small Regional banks have a positive and significant the reaction to increased Section 20 investment banking powers, although the Small Regional group is significant at the 10% level in the model that incorporates risk shifts. These results hold for a model that incorporates a risk-shift and nonsynchronous trading variable. Because F-tests suggest significantly different reactions between Small Regional banks and all three other groups, a cross sectional analysis is performed for the reaction to the Federal Reserve increasing Section 20 powers on December 20, 1996. The abnormal returns are positive and highly significant for banks with prior Section 20 subsidiaries and negative and significantly lower for Small Regional banks as compared to the average bank in the sample. Money Center status, prior performance, loans to assets, deposits to assets, capital, off-balance sheet, and derivative trading variables are all found to be insignificant in the cross sectional models. The results hold in models that incorporate a risk-shift variable or not. The cross sectional findings indicate that the ability to gain from investment banking activity is a function of large enough size to be able to adequately acquire an investment bank to augment the commercial banking product line, and more importantly prior Section 20 activity. Small Regional banks are not likely to be able to acquire underwriters that are large enough to service the commercial customers that require investment banking services. The gains in one-stop commercial and investment banking along with potential synergies and economies of scope are apparently outweighing the large merger premia and the potential conflicts of interest that are likely to be required to enter into the new era of financial services. These results support the findings of Ang and Richardson 1994 and Kroszner and Rajan 1994, and Puri (1996) that the potential conflicts of interest between commercial and investment banking are not too severe. The results confirm the findings of Bhargava and Fraser (1998) who find no reaction around the initial announcement by the Fed to increase the loophole. However, this paper studies the events before and after the Fed announcement to capture the full effect of increased investment banking power as well as comparing the reaction of other publicly traded banks to study potential competitive effects. One of the main contributions of this paper is to show that the true event for increasing the Section 20 loophole was the final approval and not the initial proposal to increase the loophole as in Bhargava and Fraser (1998). Although an argument can be made that large commercial banks are expected to gain vis-à-vis small commercial banks, these findings suggest the demise of Glass–Steagall is positive overall for the commercial banking industry. Market participants indicate that the ability to increase corporate debt and equity underwriting is more valuable given large enough size to enter the activity. Smaller banks that are unable to capitalize on the increased investment banking activity could be at a competitive disadvantage in the long-run if market participants are correct in their assessment of the impact of increased investment activity by commercial banks. Eq. 3