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On the Riskiness of Universal Banking: Evidence from Banks in the Investment Banking Business Pre‐ and Post‐GLBA

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  • VICTORIA GEYFMAN
  • TIMOTHY J. YEAGER

Abstract

We explore whether an economically significant differential exists in market‐based risk measures between universal banks and traditional banks. Using a three‐asset portfolio regression model, we find that between 1990 and 2007—a period of gradual deregulation culminating in passage of the Gramm–Leach–Bliley Act (GLBA) of 1999—an increased participation in investment banking was associated with higher total and unsystematic risks and no significant change in systematic risk. Small risk‐reduction benefits emerged in the post‐GLBA era, but such benefits were likely the result of the particular sample period rather than a fundamental change in bank structure following the GLBA. Our results cannot justify the GLBA on risk‐reduction grounds, though the Act may be defensible for other reasons.

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  • Victoria Geyfman & Timothy J. Yeager, 2009. "On the Riskiness of Universal Banking: Evidence from Banks in the Investment Banking Business Pre‐ and Post‐GLBA," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(8), pages 1649-1669, December.
    • Handle: RePEc:wly:jmoncb:v:41:y:2009:i:8:p:1649-1669
    DOI: 10.1111/j.1538-4616.2009.00266.x
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    3. Mimoza Shabani & Carmela D'Avino, 2020. "A new approach to measuring universal banking," Bulletin of Economic Research, Wiley Blackwell, vol. 72(4), pages 353-379, October.
    4. Liu, Frank Hong & Norden, Lars & Spargoli, Fabrizio, 2020. "Does uniqueness in banking matter?," Journal of Banking & Finance, Elsevier, vol. 120(C).
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    6. Stefano Colonnello, 2022. "The Real Effects of Universal Banking: Does Access to the Public Debt Market Matter?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(1), pages 77-110, February.
    7. Vinas, Frédéric, 2021. "How financial shocks transmit to the real economy? Banking business models and firm size," Journal of Banking & Finance, Elsevier, vol. 123(C).

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