Financial Modernization in Us Banking Markets: A Local or Global Event?

33 Pages Posted: 28 Mar 2006

See all articles by Aigbe Akhigbe

Aigbe Akhigbe

University of Akron - Department of Finance

Melissa B. Frye

University of Central Florida - College of Business Administration

Ann Marie Whyte

University of Central Florida

Abstract

We test the hypothesis that the passage of the Financial Services Modernization Act (FSMA) of 1999 has spillover effects cross-nationally, using a sample of US, non-US transactional (Australian, Canadian, and UK), and relationship (German, Japanese, Dutch, and Swiss) banks. Our results suggest that financial modernization in the US has limited cross-national effects. We find strong evidence that US banks were affected favorably. Although we detect some evidence of significant reactions by banks in certain countries, a closer examination reveals that the reaction is most likely attributable to events in the respective countries during the event period. We do find, however, that non-US transactional banks have been more likely to elect financial holding company status compared to relationship banks, suggesting they are positioning themselves to exploit the expanded opportunity set created by the FSMA. Nonetheless, the majority of elections have been made by US banks. In general, the results suggest that the respective banking markets are efficient in filtering events that are largely country-specific with only limited implications for other international banks.

Suggested Citation

Akhigbe, Aigbe and Frye, Melissa and Whyte, Ann Marie, Financial Modernization in Us Banking Markets: A Local or Global Event?. Journal of Business Finance & Accounting, Vol. 32, No. 7-8, pp. 1561-1585, September 2005, Available at SSRN: https://ssrn.com/abstract=877435 or http://dx.doi.org/10.1111/j.0306-686X.2005.00640.x

Aigbe Akhigbe

University of Akron - Department of Finance ( email )

Akron, OH 44325-4803
United States
330-972-6883 (Phone)

Melissa Frye (Contact Author)

University of Central Florida - College of Business Administration ( email )

P.O. Box 161400
Department of Finance
Orlando, FL 32816
United States
407-823-3097 (Phone)

Ann Marie Whyte

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

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