Can U.S. Banks and Insurers Achieve Benefits Promised by Financial Integration?

Abstract

The Gramm-Leach-Bliley Act of 1999 essentially removed the barriers that enforced the separation between commercial banks, investment banks, and insurance companies in the U.S. We construct a unique data set, which links the U.S. banking and insurance regulatory data sets. We investigate efficiency effects from possible economies of scope across the two formally separate sectors by estimating multiproduct cost, revenue, and profit functions. The empirical evidence suggests that there are significant cost scope diseconomies, revenue scope economies, and weak profit scope economies. The scope economies vary among firms, and certain firm characteristics are the determinants of scope economies.