On the Riskiness of universal banking: evidence from banks in the investment banking business Pre- and Post-GLBA

Deskripsi

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..Printed journal