Welfare effects of expanding banking organization opportunities in the securities arena.
This study examines the welfare consequences of expanding, via deregulation, securities activities of banking organizations. The wealth effect of expanding the permissible scale of Bank Holding Company (BHC) securities activities is redistributive: when revenue limits are relaxed, BHCs gain at the expense of investment banks and their customers. However, removing prudential interaffiliate firewalls to permit BHCs to freely pursue synergies from the joint performance of banking and securities activities shows negative wealth effects for BHCs and an increase in their idiosyncratic risk. Relaxing firewalls appears to raise concerns about stockholder and customer exposure to “ethical risk” loss from management conflicts of interest.
Narayanan, R.P., Rangan, N.K. & Sundaram, S. (2002). Welfare effects of expanding banking organization opportunities in the securities arena. Quarterly Review of Economics and Finance, 42, 505-527. doi: 10.1016/S1062-9769(01)00130-2
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