The Financial Modernization Act: evolution or revolution?

Ellen Harshman, Fred C. Yeager and Timothy J. Yeager

No 2004-05, Supervisory Policy Analysis Working Papers from Federal Reserve Bank of St. Louis

Abstract: The Gramm-Leach-Bliley Act (GLBA) removed the barriers that separated commercial banking from investment banking, merchant banking, and insurance activities. Did this legislation revolutionize the financial services industry by allowing Financial Holding Companies (FHCs) to exploit revenue efficiencies and cost economies, or did it merely formalize an evolutionary process of deregulation that was already well underway? Our evidence refutes the notion that the GLBA was a revolutionary event, at least in the short run. Using a combination of market and accounting data, we find that, to date, FHC status has had little effect on bank performance. We do find, however, limited evidence that FHCs that were Section 20 affiliates before passage of the GLBA were able to further exploit the synergies between investment banking and commercial banking.

Keywords: Gramm-Leach-Bliley Act; Banking law - United States; Bank holding companies (search for similar items in EconPapers)
Date: 2004
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