Commercial Banks in Investment Banking

Gande, Amar

doi:10.1016/b978-044451558-2.50011-8

Cited by 16 publications

(9 citation statements)

References 50 publications

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“…We determined this index, named activity restrictions, by considering whether securities, insurance, real estate activities, and ownership of non-financial firms are unrestricted, permitted, restricted, or prohibited (for more information, please refer to the Appendix). The theoretical literature has identified both the advantages and the disadvantages of allowing banks to offer a wide range of financial services, with emphasis placed on the provision of investment services (e.g., Gande, 2008). First, conflicts of interest may arise as banks misstate a borrower's quality and underwrite securities at inflated prices to service outstanding loans, as well as misguide their depositors to acquire such securities (e.g., Kang and Liu, 2007).…”

Section: Other Bank-and Country-level Control Variablesmentioning

confidence: 99%

Supervisory Effectiveness and Bank Risk*

2011

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This paper investigates the role of banking supervision in controlling bank risk. Banking supervision is measured in terms of enforcement outputs (i.e., on-site audits and sanctions).Our results show an inverted U-shaped relationship between on-site audits and bank risk, while the relationship between sanctions and risk appears to be linear and negative. We also consider the combined effect of effective supervision and banking regulation (in the form of capital and market discipline requirements) on bank risk. We find that effective supervision and market discipline requirements are important and complementary mechanisms in reducing bank fragility. This is in contrast to capital requirements, which prove to be rather futile in controlling bank risk, even when supplemented with a higher volume of on-site audits and sanctions.JEL Classifications: G21; G32; G38

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Section: Other Bank-and Country-level Control Variablesmentioning

confidence: 99%

Supervisory Effectiveness and Bank Risk*

2011

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“…62 Fourth: The potential conflicts in using the securities affiliate or department of a bank to underwrite new securities in order to repay the unprofitable loans or non-performing loans made by the same commercial bank. 63 By underwriting securities that the commercial bank itself is knowledgeable of its questionable value, the commercial bank can benefit from such underwriting by requiring the firm to use the proceeds from the issue to pay off the loan. In so doing, the commercial bank serves itself at the expense of outside investors in the newly issued securities.…”

Section: Mitigating Conflicts Of Interest In Universal Bankingmentioning

confidence: 99%

Can the Plight of the European Banking Structural Reforms Be a Blessing in Disguise?

Nabilou

2019

SSRN Journal

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One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence on the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller mistakes that could pave the way for a more optimal approach to introducing banking structural reforms at the European level in the future.The literature on financial regulation includes various measures for addressing the risks of financial institutions. From among these measures, three overarching approaches to reducing the externalities emanating from the financial institutions stand out. The first set of these measures include price-based regulations such as emission taxes in environmental regulation and capital or liquidity requirements in banking regulation. These regulations are normally introduced in tandem with enhanced and effective supervisory and resolution mechanisms. Such measures can also be combined with the structural limits on the size and scope of the activities of financial institutions. 15 Price-based regulations for addressing systemic risk may include the enhanced regulatory framework in the form of higher quantity and quality of lossabsorbing capital and stricter liquidity standards. 16 Second, quantity-based regulation such as emission quotas in environmental regulation. 17 In the banking industry, concentration limits, the regulations encouraging the allocation of certain ratios of loans to underprivileged segments of the society or regulations requiring gender balance on boards oftentimes take this form. Third, structural regulations are often imposed on the size, structure or scope of activities of financial institutions. 18 Its scope includes separating and moving risky and complex businesses to stan...

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“…Underwriters who have information advantages about issuing firms, on the other hand, might have incentives to misuse their private information. Because the commercial banks might misrepresent the quality of issuing firms in order to raise funds for the repayment of the debts owed to the commercial banks, the underwriting services provided by commercial banks in debt issues and equity issues raise the concern of conflicts of interest (Drucker and Puri ; Gande ). Furthermore, Fong and Lam () also report that controlling shareholders of issuing firms as SEO underwriters may increase their ownership by setting deep price discounts in Hong Kong rights issues and open offers, and the announcements of their underwritings lead to greater negative market reactions.…”

Section: Theory and Hypotheses Developmentmentioning

confidence: 99%

“…If the acquired information in the underwriting process is durable, there are economies of scale for investment banking in the course of repeated dealings (see also Narayanan et al . ; Gande ).…”

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confidence: 99%

Selection Bias and the Underwriter Certification of the Largest Shareholders in Seasoned Equity Offerings

2017

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The largest shareholders of issuing firms in Hong Kong are eligible to underwrite rights issues and open offers. We hypothesize that the largest shareholders as underwriters who possess more information are better than investment banks in certifying firm value. Our analyses show that the largest shareholders self‐select into their preferred issuing firms, and a selection bias in the choice of underwriters arises. After controlling for firm and issue characteristics and addressing the selection bias, our findings support our hypothesis. We also find that investment banks with greater access to information through prior underwriting relationship provide better certification than investment banks without such relationship.

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Commercial Banks in Investment Banking

Cited by 16 publications

References 50 publications

Supervisory Effectiveness and Bank Risk*

Supervisory Effectiveness and Bank Risk*

Can the Plight of the European Banking Structural Reforms Be a Blessing in Disguise?

Selection Bias and the Underwriter Certification of the Largest Shareholders in Seasoned Equity Offerings

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