Showing papers by "James R. Barth published in 2000"

Policy Watch The Repeal of Glass-Steagall and the Advent of Broad Banking

Abstract: Enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999 effectively repealed the long-standing prohibitions on the mixing of banking with securities or insurance businesses and thus permits "broad banking." We attribute repeal of these prohibitions to the increasingly persuasive evidence from academic studies of the pre-Glass-Steagall era, the recent favorable experience in the United States following partial deregulation of banking activities, the experience of banking systems abroad with broader scopes for banking activities, and rapid technological change in telecommunications and data processing. How regulators will in practice coordinate their efforts so that the safety and soundness of the banking system is maintained efficiently remains to be seen.

The Repeal of Glass-Steagall and the Advent of Broad Banking

Abstract: Enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999 effectively repealed the long-standing prohibitions on the mixing of banking with securities or insurance businesses and thus permits “broad banking.” Since the barriers that separated banking from other financial activities have been crumbling for some time, GLBA is better viewed as ratifying, rather than revolutionizing, the practice of banking. We attribute repeal of these prohibitions to the increasingly persuasive evidence from academic studies of the pre-Glass-Steagall era, the recent favorable experience in the United States following partial deregulation of banking activities, the experience of banking systems abroad with broader scopes for banking activities, and rapid technological change in telecommunications and data processing. GLBA generally adheres to the principle of “functional regulation,” which holds that similar activities should be regulated by the same regulator. How regulators will in practice coordinate their efforts so that the safety and soundness of the banking system is maintained efficiently remains to be seen. Broad banking companies may produce financial services at greater convenience and lower cost. Increased product diversification may simultaneously make them less prone to failure. It is unclear, however, whether continuing technological advance or any future banking liberalization will favor “one-stop shopping” via broad banking companies, or perhaps will favor delivery of the financial products and services of multiple companies through an internet portal. ________________________________ *The opinions expressed herein are those of the authors and do not necessarily represent those of the Office of the Comptroller of the Currency or of the U.S. Department of the Treasury. The authors thank Nancy Michaleski, Raymond Natter, Gary Whalen and Julie Williams for helpful comments. Forthcoming in the May 2000 issue of the Journal of Economic Perspectives. James R. Barth is Lowder Eminent Scholar in Finance, Auburn University, Auburn, Alabama, and Senior Finance Fellow, Milken Institute, Los Angeles, California. R. Dan Brumbaugh, Jr. is Senior Finance Fellow, Milken Institute, Los Angeles, California. James A. Wilcox is Chief Economist, Office of the Comptroller of the Currency, Washington, D.C. Please address correspondence to: James A. Wilcox, Chief Economist, Office of the Comptroller of the Currency, Mail Stop 2-2, 250 E Street, S. W., Washington, DC 20219; phone: (202) 874-5230; e-mail: james.wilcox@occ.treas.gov

Banking systems around the globe: do regulation and ownership affect the performance and stability?

Abstract: The authors report cross-country data on commercial bank regulation and ownership in more than 60 countries. They evaluate the links between different regulatory/ownership practices in those countries and both financial sector performance and banking system stability. They document substantial variation in response to these questions: Should it be public policy to limit the powers of commercial banks to engage in securities, insurance, and real estate activities? Should the mixing of banking and commerce be restricted by regulating commercial bank's ownership of non-financial firms and non-financial firms'ownership of commercial banks? Should states own commercial banks, or should those banks be privatized? They find: 1) There is no reliable statistical relationship between restrictions on commercial banks'ability to engage in securities, insurance, and real estate transactions and how well-developed the banking sector, how well-developed securities markets and non-bank financial intermediaries are, or the degree of industrial competition. Based on the evidence, it is difficult to argue confidently that restricting commercial banking activities benefits-or harms-the development of financial and securities markets or industrial competition. 2) There are no positive effects from mixing banking and commerce. 3) Countries that more tightly restrict and regulate the securities activities of commercial banks are substantially more likely to suffer a major banking crisis. Countries whose national regulations inhibit banks'ability to engage in securities underwriting, brokering, and dealing--and all aspects of the mutual fund business--tend to have more fragile financial systems. 4) The mixing of banking and commerce is associated with less financial stability. The evidence does not support admonitions to restrict the mixing of banking and commerce because mixing them will increase financial fragility. 5) On average, greater state ownership of banks tends to be associated with more poorly developed banks, nonbanks, and stock markets and more poorly functioning financial systems.

Restructuring Regulation and Financial Institutions

Abstract: Restructuring Regulation and Financiel Institutions J.R. Barth, R.D. Brumbaugh, Jr., G. Yago.