Wealth Effects of the Gramm-Leach-Bliley Act on Financial Services Industry

Gramm-Leach-Bliley Act (GLBA) was signed into law on November 12, 1999.This act is regarded as the most influential deregulation for the U.S. financial servicesindustry in the past one-century. The purpose of this study is to determine and analyze thewealth effects of the GLBA on U.S. and foreign banks and insurance companies.This dissertation is composed of four separate essays. In the first two chapters Iinvestigate the wealth effects of the GLBA on domestic banks and insurance companies. Ifind that Money Center Banks followed by Super Regional Banks benefit most from thisderegulation. I also find that banks with Section 20 investment subsidiaries benefit morethan rest of the industry. For all types of banks exposure to systematic risk reducesfollowing the enactment of the GLBA. In cross sectional analysis I find that banks sizeand change in exposure to systematic risk can explain the wealth effects at firm level.In the domestic insurance industry, property/casualty and life insurancecompanies have the highest wealth effect. Exposure to systematic risk also reduces for alltypes of insurance companies following the enactment of the GLBA. From crosssectional analysis I find that diversification opportunities and safeguards againstexcessive risk taking create value for property/casualty and all other (except life)insurance companies. I also test merger related hypothesis. The result shows that poorperforming firms and larger firms gain more form this deregulation. In the third and fourth chapter I investigate the wealth effects of the GLBA oninternational banks and foreign insurance companies. I find that the events leading to thepassage of the GLBA have significant negative wealth effects (spill-over effects) on theportfolios of banks and insurance companies for most of the developed countries Ianalyze. These effects are not same for any two countries. Most importantly I find thatreduction in diversification opportunities for international banks and foreign insurancecompanies in the U.S. market can explain the wealth effects at firm level from the GLBA.