Intra- and Interindustry Effects of Bank Securities Market Activities: The Case of Discount Brokerage

Abstract

Despite substantial debate, there has been little empirical analysis of the economic arguments concerning commercial bank expansion into securities activities. This paper uses the stock price response of commercial banking firms and securities firms to examine the risk and return effects of the announcement of bank entry into one such activity, discount brokerage. Our findings indicate that, while bank profitability and risk were largely unaffected by such entry, securities firms experienced a significant decline in market value. These results indicate that the objection of the securities industry to bank discount brokerage expansion was largely self-motivated and that bank safety and soundness would not be imperiled by such expansions.