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Who Benefits from Deregulating the Separation of Banking Activities? Differential Effects on Commercial Bank, Investment Bank, and Thrift Stock Returns
Author(s) -
Czyrnik Kathy,
Klein Linda Schmid
Publication year - 2004
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.0732-8516.2004.00078.x
Subject(s) - deregulation , investment banking , business , financial system , revenue , investment (military) , finance , financial services , retail banking , stock (firearms) , commercial bank , modernization theory , banking industry , economics , market economy , economic growth , mechanical engineering , politics , political science , law , engineering
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.