Article Abstract:
The emergence of universal banks as a result of consolidation has worsened the problem of government-induced moral hazard in banking. Moral hazard in banking results from the introduction of government safety nets such as deposit insurance, and universal banking compounds the problem by extending the distortion of incentives arising from moral hazard to other sectors of the economy. Banking regulators are therefore advised to take the necessary steps to control government-induced moral hazard in banking, although this may prove to be a formidable task.
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Article Abstract:
An analysis of the risk and wealth effects of commercial banks' entry into securities underwriting under Section 20 reveals that positive abnormal returns with little changes in risk were observed in the initial stages while expansion of powers produced negative abnormal returns and increased risk. The findings are surprising but may imply that banks are further exposed to the federal safety net because of the expansion and/or it may imply that increase in competition may have consequently produced the negative abnormal returns.
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Article Abstract:
Federal Deposit Insurance Corp. purchase and assumption transactions are studied. Results show that acquirers of large failed banks earn large positive abnormal returns. These returns are attributed to either the synergy or over subsidization hypotheses. It is also shown that excess returns are not affected by scale or scope economies and that well-capitalized bidders are given preferential treatment.
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