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 services industry in the past one-century. The purpose of this study is to determine and analyze the wealth 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 I investigate the wealth effects of the GLBA on domestic banks and insurance companies. I find that Money Center Banks followed by Super Regional Banks benefit most from this deregulation. I also find that banks with Section 20 investment subsidiaries benefit more than rest of the industry. For all types of banks exposure to systematic risk reduces following the enactment of the GLBA. In cross sectional analysis I find that banks size and change in exposure to systematic risk can explain the wealth effects at firm level. In the domestic insurance industry, property/casualty and life insurance companies have the highest wealth effect. Exposure to systematic risk also reduces for all types of insurance companies following the enactment of the GLBA. From cross sectional analysis I find that diversification opportunities and safeguards against excessive risk taking create value for property/casualty and all other (except life) insurance companies. I also test merger related hypothesis. The result shows that poor performing firms and larger firms gain more form this deregulation. In the third and fourth chapter I investigate the wealth effects of the GLBA on international banks and foreign insurance companies. I find that the events leading to the passage of the GLBA have significant negative wealth effects (spill-over effects) on the portfolios of banks and insurance companies for most of the developed countries I analyze. These effects are not same for any two countries. Most importantly I find that reduction in diversification opportunities for international banks and foreign insurance companies in the U.S. market can explain the wealth effects at firm level from the GLBA.