This paper examines the impact of Gramm-Leach-Bliley Act across three main sectors of the financial services industry: commercial banks, insurance companies, and brokerage firms, taking account of the wealth effect associated with the announcement. We find that the law has a differential impact across the financial services industry. All three industries have gained due to this law with commercial banks benefiting most, followed by the insurance industry. Further, the results show that larger firms benefited more in both the banking and insurance industries and exposure to systematic risk was reduced for all sectors of the financial services industry after this regulation passed.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Akhigbe, A., and A.M. Whyte. 2001. “The Market's Assessment of the Financial Services Modernization Act of 1999”.The Financial Review 36: 119–138.
Allen, P.R., and W.J. Wilhelm. 1988. “The Impact of the 1980 Depository Institutions Deregulation and Monetary Control Act on Market Value and Risk: Evidence from the Capital Markets”.Journal of Money, Credit and Banking 20: 364–380.
Barth, J.R., R.D. Brumbaugh, Jr., and J.A. Wilcox. 2000. “The Repeal of Glass-Steagall and the Advent of Broad Banking.”Journal of Economic Perspectives 14: 191–204.
Barth, J.R., D.E. Nolle, and T.N. Rice. 2000. “Commercial Banking Structure, Regulation and Performance: An International Comparison”. InModernizing Financial Systems, edited by Dimitri B. Papadimitriou. New York: St. Martin's Press, Inc.: 119–251.
Benston, G.J. 1996. “The Origins of and Justification for the Glass-Steagall Act”. InUniversal Banking, edited by Anthony Saunders and Ingo Walter. Chicago: Irwin Professional Publishing: 31–69.
Berndt, E.R., and N.E. Savin. 1977. “Conflict among Criteria for Testing Hypotheses in the Multivariate Linear Regression Model”.Econometrica 45: 1263–1277.
Bhargava, R., and D.R. Fraser. 1998. “On the Wealth and Risk Effects of Commercial Bank Expansion into Securities Underwriting: An Analysis of Section 20 Subsidiaries”.Journal of Banking and Finance 22: 447–465.
Binder, J.J. 1985a. “Measuring the Effects of Regulation with Stock Price Data”.Rand Journal of Economics 16: 167–183.
— 1985b. “On the Use of the Multivariate Regression Model in Event Studies”.Journal of Accounting Research 23: 370–383.
— 1988. “The Sherman Antitrust Act and the Railroad Cartels”.Journal of Law and Economics 31: 443–476.
Brook, Y., R. Hendershott, and D.E. Lee. 1998. “The Gains from Takeover Deregulation: Evidence from the End of Interstate Banking Restrictions”.Journal of Finance 53: 2185–2204.
Carow, K.A., and R. Heron. 2002. “Capital Market Reactions to the Passage of the Financial Services Modernization Act of 1999”.The Quarterly Review of Economics and Finance. Forthcoming.
Carow, K.A. 2001. “The Wealth Effects of Allowing Bank Entry into the Insurance Industry”.The Journal of Risk and Insurance 68: 129–150.
Chen, A.H., and L.J. Merville. 1986. “An Analysis of Divestiture Effects Resulting from Deregulation”.Journal of Finance 41: 997–1010.
Clarke, R.G. 1980. “The Effect of Fuel Adjustment Clauses on the Systematic Risk and Market Values of Electric Utilities”.Journal of Finance 35: 347–358.
Cornett, M.M., E. Ors, and H. Tehranian. 2002. “Bank Performance around the Introduction of a Section 20 Subsidiary”.Journal of Finance 57: 501–522.
Cornett, M.M., and H. Tehranian. 1989. “Stock Market Reactions to the Depository Institutions Deregulation and Monetary Control Act of 1980”.Journal of Banking and Finance 13: 81–100.
—. 1990. “An Examination of the Impact of the Garn-St. Germain Depository Institutions Act of 1982 on Commercial Banks and Savings and Loans”.Journal of Finance 45: 95–111.
Cyree, K.B. 2000. “The Erosion of the Glass-Steagall Act: Winners and Losers in the Banking Industry”.Journal of Economics and Business 52: 343–363.
Ely, D.P., and K.J. Robinson. 1998. “How Might Financial Institutions React to the Glass-Steagall Repeal? Evidence from the Stock Market”. Federal Reserve Bank of DallasFinancial Industry Studies (September).
Espahbodi, R, and H. Tehranian. 1989. “Stock Market Reactions to FASB3 and the Preceding Exposure Draft”.Contemporary Accounting Research 5: 575–591.
Fama, E.F., and J.D. MacBeth. 1973. “Risk Return and Equilibrium: Empirical Tests”.Journal of Political Economy 71: 607–636.
Feldman, R.J., J.M., Lyon, and N.D. Willardson. March 2000. “Have We Only Just Begun? Challenges in Implementing the Gramm-Leach-Bliley Regime”.The Region.
Flannery, M.J., and C.M. James. 1984. “The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions”.Journal of Finance 39: 1141–1153.
Gande A., M. Puri, and A. Saunders. 1999. “Bank Entry, Competition, and Market for Corporate Securities Underwriting”.Journal of Financial Economics 54: 165–195.
Giliberto, M. 1985. “Interest Rate Sensitivity in the Common Stocks of Financial Intermediaries: A Methodological Note”.Journal of Financial and Quantitative Analysis 20,: 132–126.
Golembe, C.H. 2000. “Financial Modernization Legislation: An Assessment”.The Region (Special Issue).
Hendershott, R., D.E. Lee, and J.G. Tompkins. 2002. “Winners and Losers as Financial Services Providers Converge: Evidence from the Financial Modernization Act of 1999”.The Financial Review 37: 53–72.
Kane, E.J., and H. Unal. 1988. “Change in Market Assessments of Deposit-Institution Riskiness”.Journal of Financial Services Research 1: 207–229.
Maloney, M.T., and R.E. McCormick. 1980. “Environmental Quality Regulation”. Unpublished manuscript. University of Rochester, Graduate School of Management.
Puri, M. 1996. “Commercial Banks in Investment Banking: Conflict of Interest or Certification Role?”Journal of Financial Economics 40: 373–401.
Rajan, R.G. 1996. “The Entry of Commercial Banks into the Securities Business”. InUniversal Banking, edited by Anthony Saunders and Ingo Walter. Chicago: Irwin Professional Publishing: 282–302.
Rose, N.L. 1985. “The Incidence of Regulatory Rents in the Motor Carrier Industry”.Rand Journal of Economics 16: 299–318.
Santomero, A.M. 2001. “The Causes and Effects of Financial Modernization.” Remarks before the Pennsylvania Bankers Association (May 7).
Saunders, A., and M.M. Cornett. 2002.Financial Institutions Management: A Risk Management Approach. 4th Ed. McGrawHill.
Saunders, A., and M. Smirlock. 1987. “Intra- and Interindustry Effects of Bank Securities Market Activities: The Case of discount Brokerage”.Journal of Financial and Quantitative Analysis 22: 467–482.
Schipper, K., and R. Thompson. 1983. “The Impact of Merger-Related Regulations on the Shareholders of Acquiring Firms”.Journal of Accounting Research 21: 184–221.
Schwert, G.W. 1981. “Using Financial Data to Measure the Effects of Regulation”.Journal of Law and Economics 25: 121–145.
Smith, R.T., M. Bradley, and G. Jarrell. 1986. “Studying Firm-Specific Effects of Regulation with Stock Market Data: An Application to Oil Price Regulation”.Rand Journal of Economics 17: 467–489.
Zellner, A. 1962. “An Efficient Method of Estimating Seemingly Unrelated Regression and Tests of Aggregation Bias”.Journal of American Statistical Association 57: 348–368.
About this article
Cite this article
Mamun, A.A., Hassan, M.K. & Van Lai, S. The impact of the Gramm-Leach-Bliley act on the financial services industry. J Econ Finan 28, 333–347 (2004). https://doi.org/10.1007/BF02751736
- Banking Industry
- Federal Reserve
- Commercial Bank
- Insurance Industry
- Seemingly Unrelated Regression