Are Universal Banks Better Underwriters? Evidence from the Last Days of the Glass-Steagall Act

Posted: 25 Mar 2010

See all articles by Dario Focarelli

Dario Focarelli

ANIA - Italian Association of Insurance Companies; University of Rome La Sapienza - Actuarial Science Department

David Marques-Ibanez

European Central Bank (ECB)

Alberto F. Pozzolo

Università degli Studi di Roma Tre

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2010

Abstract

It has often been argued during the recent credit crisis that banks’ involvement in investment banking activities might have had an impact on the intensity of their underwriting standards. We turn to evidence from the period prior to the revocation of the Glass-Steagall Act in the United States and analyze whether investment banks or section 20 subsidiaries of commercial banks underwrote riskier securities. We compare actual defaults of these deals for an extensive sample of 4,375 corporate debt securities underwritten during the period of the de facto softening of the Act’s restrictions. On average, securities underwritten by commercial banks’ subsidiaries have a higher probability of default than those underwritten by investment houses. Based on these results, it is not possible to reject that the repeal of the Glass-Stegall led to looser credit screening by broad (universal) banking companies. We also argue that a better understanding of the impact of commercial banks’ involvement on the securities business on the screening of all types of credit is warranted.

Keywords: Glass-Steagall Act, securities underwriting, default, investment banking

JEL Classification: G21, G24, N22

Suggested Citation

Focarelli, Dario and Marques-Ibanez, David and Pozzolo, Alberto F., Are Universal Banks Better Underwriters? Evidence from the Last Days of the Glass-Steagall Act (March 16, 2010). Available at SSRN: https://ssrn.com/abstract=1573177 or http://dx.doi.org/10.2139/ssrn.1573177

Dario Focarelli

ANIA - Italian Association of Insurance Companies ( email )

Via di San Nicola da Tolentino, 72
Rome, 00187
Italy
+39.06.32688619 (Phone)
+39.06.91622570 (Fax)

HOME PAGE: http://www.ania.it/it/chi-siamo/curriculum-vitae/dario-focarelli.html

University of Rome La Sapienza - Actuarial Science Department ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

David Marques-Ibanez (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)

Alberto F. Pozzolo

Università degli Studi di Roma Tre ( email )

Via Ostiense 163
Roma, RM 00154
Italy

HOME PAGE: http://www.uniroma3.it/

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