Banks in the securities business: market-based risk implications of section 20 subsidiaries

Victoria Geyfman

No 05-17, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper explores whether there was an economically significant differential in market-based risk between bank holding companies (BHCs) with Section 20 subsidiaries ? subsidiaries that were authorized by the Federal Reserve to conduct bank-ineligible securities activities ? and BHCs without such subsidiaries. Using market returns over a period of time in which BHCs expanded into securities activities, from 1985 through 1999, this study finds evidence that BHCs that participated in investment banking exhibited significantly lower total and unsystematic risk, suggesting that banks? participation in the securities business resulted in diversification gains. However, BHCs with Section 20 subsidiaries exhibited higher systematic risk.

Keywords: Securities; Risk; Bank holding companies (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (7)

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