Table of Contents

Research Handbook on International Banking and Governance

Research Handbook on International Banking and Governance

Elgar original reference

Edited by James R. Barth, Chen Lin and Clas Wihlborg

The contributors – top international scholars from finance, law and business – explore the role of governance, both internal and external, in explaining risk-taking and other aspects of the behavior of financial institutions. Additionally, they discuss market and policy features affecting objectives and quality of governance. The chapters provide in-depth analysis of factors such as: ownership, efficiency and stability; market discipline; compensation and performance; social responsibility; and governance in non-bank financial institutions. Only through this kind of rigorous examination can one hope to implement the financial reforms necessary and sufficient to reduce the likelihood and severity of future crises.

Chapter 23: Bank Acquisitions and Strategy since the GLB Act

J. Kimball Dietrich

Subjects: economics and finance, money and banking


J. Kimball Dietrich 23.1 INTRODUCTION: BANK STRATEGY AND THE GRAMM–LEACH–BLILEY ACT The Gramm–Leach–Bliley Act of 1999 (GLB Act) of the USA, also known as the Financial Modernization Act and in some policy discussions as the ‘Deregulation Act’, was largely an effort to allow commercial banks and bank holding companies (BHCs) to expand their operations beyond strict commercial banking activities, taking deposits and making loans. Acquisitions undertaken by banks and BHCs since 1999 can be viewed as allowing banks much greater flexibility in their strategies in the financial services industry (as discussed below). The goal of the Act was to balance the competitive position of US banks relative to international banks (so-called universal banks), allowed by foreign banking laws to engage in securities and insurance services, and US non-banks (and non-banking holding companies) like thrifts and finance companies, also allowed a wider range of non-bank activities than BHCs. The primary provisions of the GLB Act were amendments to the Bank Holding Company Act of 1956 (BHC Act) as amended, and to Section 20 of the Federal Reserve Act (the Glass–Steagall Act) that limited banks and BHCs from underwriting corporate securities. The Bank Holding Company Act required BHCs to be regulated by the Federal Reserve Board (FRB) and that all acquisitions of BHCs satisfy the test that the acquired businesses were ‘closely related to banking’. Insurance and securities services were legally deemed not closely related to banking. FRB approvals through time established a number of non-bank activities...

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