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

Victoria Geyfman and Timothy J. Yeager

Journal of Money, Credit and Banking, 2009, vol. 41, issue 8, 1649-1669

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. Copyright (c) 2009 The Ohio State University.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:41:y:2009:i:8:p:1649-1669

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