Ch 21 2012 - 1 Chapter 21 Product and Geographic...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 21 Product and Geographic Diversification 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Overview First half of chapter: Product Diversification. Analyze the problems and risks arising as a result of the restrictions that force FIs to restrict activities to a narrowly defined financial services sector. Explore the potential benefits to greater product expansion. Identify the potential effects of universal banking. Second half of chapter: Geographic Diversification. Benefits to geographic diversification available in the domestic market and reasons underlying the merger wave in the U.S. Evidence on the cost and revenue synergies and other factors affecting geographic expansion. 2
Background image of page 2
Introduction Definition: Universal banking means commercial banking, investment banking, and insurance are in the same FI. Universal FI structure in Germany, Switzerland, and UK. In the US, these functions were separate starting in 1930s. Citicorp/Travelers merger in 1998 was a clear indication of the rapidly eroding regulatory barriers separating FI types. Financial Services Modernization Act of 1999 (Gramm, Leach, Bliley Act) has accelerated the reduction in barriers among FIs. 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Product Segmentation between commercial and investment banking in the U.S. Historically there was a separation of commercial and investment banking via Glass-Steagall Act of 1933. Over time, exemptions for: Treasury Securities. Municipal General Obligation bonds. Private placements. 4
Background image of page 4
New Orientation starting in 1987 Greenspan vs. Volcker Paul Volcker, Fed chairman from 1979 to 1987, strongly preferred separation of commercial banking and investment banking. Alan Greenspan, Fed chairman from 1987 to 2006, championed on market solutions. After various challenges, in 1987 the Fed allowed BHCs to establish Section 20 affiliates as investment banks to underwrite commercial debt and equity. The revenues from restricted securities underwriting activities had to be less than 5% of total revenue of the Section 20 affiliates (later raised to 25%). 5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Further Erosion of Glass-Steagall Permissible activities of BHCs expanded by Federal Reserve and OCC in 1997. Fed allowed direct acquisition of investment banks rather than establishing Section 20 subsidiaries. Resulted in number of M&As between commercial and investment banks in 1997 through 2000. UBS/Paine Webber CFSB/ Donaldson Lufkin Jenrette Deutsche Bank/Banker’s Trust preceded by Banker’s Trust acquisition of Alex Brown Citicorp/Travelers NationsBank/Montgomery Securities 6
Background image of page 6
Banking and Insurance Prior to Financial Services Modernization Act of 1999: Barriers to banks and insurance companies entering one another's lines of business. Citicorp/Travelers merger as a catalyst.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/17/2012 for the course FINA 465 taught by Professor Berger during the Spring '11 term at South Carolina.

Page1 / 48

Ch 21 2012 - 1 Chapter 21 Product and Geographic...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online