The Wealth and Risk Effects of the Gramm-Leach-Bliley Act (Glba) on the Us Banking Industry

26 Pages Posted: 3 May 2005

See all articles by Abdullah Mamun

Abdullah Mamun

University of Saskatchewan - Department of Finance and Management Science

Neal Maroney

University of New Orleans - College of Business Administration

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Abstract

The Gramm-Leach-Bliley Act (GLBA) of 1999 marks the end of Depression era regulations like the Glass-Steagall Act of 1933 and Bank Holding Company Act of 1956. These acts have restricted banks from securities and insurance underwriting business. This paper examines the impact of the GLBA on the banking industry. We find that the banking industry has a welfare gain from this law. We investigate two different categorizations of the banking industry. We find that Money Center banks followed by the Super Regional banks benefited most from this deregulation. On the other hand, banks that had Section 20 investment subsidiaries gained more than other banks in the second category. The results also show that the exposure to systematic risk for different categories of banks decreased after the passage of this law, which implies that the GLBA is fairly successful in containing the risk that accompanied the act and also created diversification opportunities. For Money Center banks, Super Regional Banks, banks with a section 20 subsidiary and banks with a new financial subsidiary, a shift in the exposure to systematic risk can explain the overall cross sectional variation in return from the deregulation. In both categorizations we find that larger banks gained more, while the overall explanatory power of profitability is not conclusive.

Suggested Citation

Mamun, Abdullah and Maroney, Neal and Hassan, M. Kabir, The Wealth and Risk Effects of the Gramm-Leach-Bliley Act (Glba) on the Us Banking Industry. Available at SSRN: https://ssrn.com/abstract=662003

Abdullah Mamun (Contact Author)

University of Saskatchewan - Department of Finance and Management Science ( email )

College of Commerce
Saskatoon, Saskatchewan S7N 5A7
Canada
306 966 1862 (Phone)
306 966 2515 (Fax)

HOME PAGE: http://www.commerce.usask.ca/faculty/mamun/

Neal Maroney

University of New Orleans - College of Business Administration ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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