Who Benefits from Deregulating the Separation of Banking Activities? Differential Effects on Commercial Bank, Investment Bank, and Thrift Stock Returns

Authors: Czyrnik K.¹; Klein L.S.²

Source: The Financial Review, Volume 39, Number 2, May 2004 , pp. 317-341(25)

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Abstract:

We analyze the deregulation impact on commercial banks, investment banks, and thrifts associated with four major events progressively integrating commercial and investment banking activities in the United States during the 1990s. We find that commercial banks are the only group to react favorably to Federal Reserve announcements relaxing firewalls and easing restrictions on commercial bank revenues from investment banking activities. These regulations primarily benefit large banks. The Bankers Trust acquisition announcement of investment bank Alex Brown is associated with increased wealth for each of the three types of financial service institutions. At the eventual deregulation of the financial services industry, with the passage of the Financial Services Modernization Act in 1999, the values of commercial banks and investment banks increase significantly although thrifts are not affected.

Keywords: banking; deregulation; wealth effects; Glass-Steagall; financial modernization; Gramm-Leach-Bililey Act; event study; G21/G22

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.0732-8516.2004.00078.x

Affiliations: 1: Central Connecticut State University 2: University of Connecticut

Publication date: 2004-05-01