Bank Entry, Competition, and the Market for Corporate Securities Underwriting

40 Pages Posted: 22 Oct 1999

See all articles by Amar Gande

Amar Gande

Southern Methodist University (SMU) - Finance Department

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Anthony Saunders

New York University - Leonard N. Stern School of Business

Multiple version iconThere are 2 versions of this paper

Abstract

Commercial banks have been a relatively recent entrant into the corporate securities underwriting market as a result of certain relaxations of the Glass-Steagall Act (especially Section 20 of the Act). The Congress and the academia have been debating the benefits and costs of allowing commercial banks to expand their non-bank activities, such as underwriting corporate securities. This paper contributes to this debate by investigating the competitive effect of commercial bank entry into the corporate securities underwriting market. It also compares and contrasts the effects in the debt underwriting market, where banks have obtained an increasing market share with those in the equity underwriting market, where banks have not yet made significant inroads.

A key result of the paper is we find that underwriter spreads declined significantly with bank entry (after controlling for several issue characteristics, such as debt rating, issue size, maturity, industry etc.) in the corporate debt market, consistent with the market becoming more competitive. Further, we find that the reduction in debt underwriter spreads is strongest among lower-rated and smaller debt issues, with banks underwriting a relatively larger proportion of such issues. Interestingly, we find that while Section 20 deregulation appears to have resulted in a significant decline in underwriting spreads in the corporate bond market, similar declines are not apparent in equity markets, where banks have not yet made significant inroads. Our paper also investigates other competitive aspects of bank entry, such as ex-ante yields and market concentration, and documents a pro-competitive effect of commercial bank entry into the market for corporate securities underwriting.

JEL Classification: G21, G24, N22

Suggested Citation

Gande, Amar and Puri, Manju and Saunders, Anthony, Bank Entry, Competition, and the Market for Corporate Securities Underwriting. Available at SSRN: https://ssrn.com/abstract=171788 or http://dx.doi.org/10.2139/ssrn.171788

Amar Gande

Southern Methodist University (SMU) - Finance Department ( email )

United States
2147681945 (Phone)
2147684099 (Fax)

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

FDIC ( email )

550 17th Street NW
Washington, DC 20429
United States

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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