On the Margin Effects of Commercial Bank Expansion into Securities and Insurance Activities under the Same Roof: A Mathematical Swap Approach

摘要

The Gramm-Leach-Bliley Act (GLBA) of 1999 allows commercial bank expansion into investment banking of securities and insurance activities without limit in subsidiaries separate from commercial banks. This paper demonstrates how securities hedging, and insurance underwriting through the total return swap approach jointly determine the optimal bank interest margin under the same roof. We find that the bank's interest margin is positively related to the bank's securities hedging demand, and to the insurance underwriting provision. This suggests diversification benefits from the return to investment banking under the same roof.