Premium
On the Riskiness of Universal Banking: Evidence from Banks in the Investment Banking Business Pre‐ and Post‐GLBA
Author(s) -
GEYFMAN VICTORIA,
YEAGER TIMOTHY J.
Publication year - 2009
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2009.00266.x
Subject(s) - deregulation , investment banking , investment (military) , asset (computer security) , business , systematic risk , portfolio , economics , sample (material) , monetary economics , banking industry , actuarial science , financial system , finance , market economy , chemistry , computer security , chromatography , politics , political science , computer science , law
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.