Abstract
The likely evolution of the financial services industry following the passage of the Gramm-Leach-Bliley (GLB) Act was considered by Cara Lown, Carol Osler, Philip Strahan, and Amir Sufi. They began by reviewing the recent consolidation trend in the banking industry, noting that from 1989 to 1999 the share of total assets held by the eight largest banking organizations rose significantly while the share of assets held by small organizations fell. Lown et al. discussed whether any diversification benefits from combining BHCs with insurance and securities firms were significant enough to lower the risk of the merged firms. Using data from large financial firms during the 1990s, Lown and her coauthors constructed pro-forma mergers for BHCs with life insurance, securities, and property and casualty firms, and then calculated risk measures for the resulting firms. The presenters, acknowledging the limitations of such a study, found that there were clear diversification benefits achieved from combining BHCs with life insurance firms. In conclusion, Lown et al. suggested that the three parts of their study - the stock price reaction, the diversification analysis, and the European model - all point to further consolidation in the financial services industry. Moreover, the expansion of banks into life insurance seems particularly likely.