Financial modernization in US banking markets: A local or global event?

    Authors

    A. Akhigbe; M. B. Frye;A. M. Whyte

    Comments

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    Abbreviated Journal Title

    J. Bus. Finan. Account.

    Keywords

    Glass-Steagall Act; Financial Services Modernization Act; Gramm-Leach-Bliley Act; contagion effects; wealth effects; INTERNATIONAL DEBT CRISIS; SECURITY RETURNS; Business, Finance

    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.

    Journal Title

    Journal of Business Finance & Accounting

    Volume

    32

    Issue/Number

    7-8

    Publication Date

    1-1-2005

    Document Type

    Article

    Language

    English

    First Page

    1561

    Last Page

    1585

    WOS Identifier

    WOS:000232019000013

    ISSN

    0306-686X

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