IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v77y2020icp220-249.html
   My bibliography  Save this article

Industrial banks: Challenging the traditional separation of commerce and banking

Author

Listed:
  • Barth, James R.
  • Sun, Yanfei

Abstract

Most people may not be familiar with industrial banks (IBs). Yet these financial institutions have been around for more than a century and predate the establishment of the Federal Reserve in 1913. Throughout the industry’s history, the only way a non-financial firm could enter banking was through the establishment of an IB. The reason was that the Federal government over the years has enacted legislation to block the entry of commercial firms into banking. By 1999, commercial firms had just one remaining point of entry: the acquisition or formation of an IB. A few years later, a flurry of news stories occurred in 2005, when retail giant Wal-Mart filed an application for an IB. The Federal Deposit Insurance Corporation (FDIC) held public hearings on Wal-Mart’s application and declared moratorium on new IB insurance applications. The controversy was defused when Wal-Mart withdrew its application for federal deposit insurance before the FDIC made a ruling. We examine the evolving role of regulation designed to prevent non-financial firms from owning banks and demonstrate the performance and regulation of IBs over time challenge the justification and necessity of such a separation.

Suggested Citation

  • Barth, James R. & Sun, Yanfei, 2020. "Industrial banks: Challenging the traditional separation of commerce and banking," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 220-249.
    • Handle: RePEc:eee:quaeco:v:77:y:2020:i:c:p:220-249
    DOI: 10.1016/j.qref.2019.10.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976919302467
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2019.10.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hsin-Yu Liang & Alan K. Reichert & Larry D. Wall, 2008. "The final frontier : the integration of banking and commerce. Part 1, the likely outcome of eliminating the barrier," Economic Review, Federal Reserve Bank of Atlanta, vol. 93(1).
    2. Haubrich, Joseph G. & Santos, Joao A. C., 2005. "Banking and commerce: A liquidity approach," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 271-294, February.
    3. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2012. "Guardians of Finance: Making Regulators Work for Us," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017393, December.
    4. John Krainer, 2000. "The separation of banking and commerce," Economic Review, Federal Reserve Bank of San Francisco, pages 15-24.
    5. Hsin-Yu Liang & Alan K. Reichert & Larry D. Wall, 2008. "The final frontier : the integration of banking and commerce. Part 2, risk and return using efficient portfolio analysis," Economic Review, Federal Reserve Bank of Atlanta, vol. 93(2).
    6. Alexander Raskovich, 2008. "Should Banking Be Kept Separate from Commerce," EAG Competition Advocacy Papers 200809, Department of Justice, Antitrust Division.
    7. Thomas F. Huertas, 1988. "Can Banking and Commerce Mix?," Cato Journal, Cato Journal, Cato Institute, vol. 7(3), pages 743-769, Winter.
    8. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, November.
    9. James R. Barth & Gerard Caprio Jr. & Ross Levine, 2001. "Banking Systems around the Globe: Do Regulation and Ownership Affect Performance and Stability?," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 31-96, National Bureau of Economic Research, Inc.
    10. Angkinand, Apanard P., 2009. "Banking regulation and the output cost of banking crises," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 240-257, April.
    11. Alexander Raskovich, 2008. "Should Banking Be Kept Separate from Commerce," EAG Discussions Papers 200809, Department of Justice, Antitrust Division.
    12. Raymond J. Saulnier, 1940. "Industrial Banking Companies and Their Credit Practices," NBER Books, National Bureau of Economic Research, Inc, number saul40-1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James R. Barth & Tong Li & Apanard Angkinand & Yuan‐Hsin Chiang & Li Li, 2012. "Industrial Loan Companies: Where Banking and Commerce Meet," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 21(1), pages 1-69, February.
    2. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Cihak, Martin & Demirguc-Kunt, Asli & Peria, Maria Soledad Martinez & Mohseni-Cheraghlou, Amin, 2012. "Bank regulation and supervision around the world : a crisis update," Policy Research Working Paper Series 6286, The World Bank.
    4. Delis, Manthos D & Gaganis, Chrysovalantis & Pasiouras, Fotios, 2009. "Bank liquidity and the board of directors," MPRA Paper 18872, University Library of Munich, Germany.
    5. Ongena, Steven & Popov, Alexander & Udell, Gregory F., 2013. "“When the cat's away the mice will play”: Does regulation at home affect bank risk-taking abroad?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 727-750.
    6. Asli Demirgüç-Kunt & Luis Servén, 2010. "Are All the Sacred Cows Dead? Implications of the Financial Crisis for Macro- and Financial Policies," The World Bank Research Observer, World Bank, vol. 25(1), pages 91-124, February.
    7. Fang, Yiwei & Fornaro, James & Li, Lingxiang & Zhu, Yun, 2018. "The impact of accounting laws and standards on bank risks: Evidence from transition countries," Journal of Economics and Business, Elsevier, vol. 95(C), pages 103-118.
    8. Monika Marcinkowska, 2013. "Regulation and self-regulation in banking: in search of optimum," Bank i Kredyt, Narodowy Bank Polski, vol. 44(2), pages 119-158.
    9. Pasiouras, Fotios & Tanna, Sailesh & Zopounidis, Constantin, 2009. "The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 294-302, December.
    10. Franklin Allen & Elena Carletti & Robert Cull & Jun Qian & Lemma Senbet & Patricio Valenzuela, 2014. "Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya," NBER Chapters, in: African Successes, Volume III: Modernization and Development, pages 13-62, National Bureau of Economic Research, Inc.
    11. Haque, Faizul & Brown, Kym, 2017. "Bank ownership, regulation and efficiency: Perspectives from the Middle East and North Africa (MENA) Region," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 273-293.
    12. Hoque, Hafiz & Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Douady, Raphael, 2015. "Bank regulation, risk and return: Evidence from the credit and sovereign debt crises," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 455-474.
    13. Ken Heyer & Carl Shapiro & Jeffrey Wilder, 2009. "The Year in Review: Economics at the Antitrust Division, 2008–2009," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(4), pages 349-367, December.
    14. Chortareas, Georgios E. & Girardone, Claudia & Ventouri, Alexia, 2012. "Bank supervision, regulation, and efficiency: Evidence from the European Union," Journal of Financial Stability, Elsevier, vol. 8(4), pages 292-302.
    15. Cousin, Violaine, 2011. "中监为体、西监为用 or the specifics of Chinese bank regulation," MPRA Paper 36040, University Library of Munich, Germany.
    16. Alexander Raskovich, 2008. "Should Banking Be Kept Separate from Commerce," EAG Competition Advocacy Papers 200809, Department of Justice, Antitrust Division.
    17. repec:zbw:bofrdp:2011_007 is not listed on IDEAS
    18. João A. C. Santos, 1998. "Banking and commerce: how does the United States compare to other countries?," Economic Review, Federal Reserve Bank of Cleveland, vol. 34(Q IV), pages 14-26.
    19. Gordon J. Alexander & Alexandre M. Baptista, 2017. "Bank Capital Regulation of Trading Portfolios: An Assessment of the Basel Framework," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(4), pages 603-634, June.
    20. Al-Shboul, Mohammad & Maghyereh, Aktham & Hassan, Abul & Molyneux, Phillip, 2020. "Political risk and bank stability in the Middle East and North Africa region," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    21. Ms. Deniz O Igan & Thomas Lambert, 2019. "Bank Lobbying: Regulatory Capture and Beyond," IMF Working Papers 2019/171, International Monetary Fund.

    More about this item

    Keywords

    Industrial bank; Bank regulation; Financial institutions; Federal Deposit Insurance Corporation;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:77:y:2020:i:c:p:220-249. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.