Regulating Financial Conglomerates

Incentive Problems in Financial Conglomerates ∗

This paper analyzes how scope-expansion by a bank affects its lending activity. Scope economies between activities naturally arises from an incentive problem in the lending business. It shows that the sale of multiple product can impede banks to credibly commit to penalize borrowers in default. Thus, borrowers are more likely to face soft budget constraint. It finds that a more competitive envi...

Managing Risk and Capital in Financial Conglomerates

* Group Treasurer, Colonial Limited. 1 The Tripartite Group of Banking, Securities and Insurance Regulators defined a financial conglomerate as “any group of companies under common control whose exclusive or predominant activities consist of providing significant services in at least two different financial sectors (banking, securities, insurance)” (see Tripartite Group of Banking, Securities a...

Financial Conglomerates in China: Legality, Model and Concerns

Through recent amendments of its Commercial Bank Law and Securities Law, China has gradually softened its previous position mandating the segregation of financial business and supervision, as well as explored the financial conglomerate operation. Two models are considered in particular, namely the “universal bank” model, prevailing in Europe, and the “financial holding company” (FHC) model in t...

On the Risk Situation of Financial Conglomerates: Does Diversification Matter?

In general, conglomeration leads to a diversification of risks (the diversification benefit) and to a decrease in shareholder value (the conglomerate discount). Diversification benefits in financial conglomerates are typically derived without accounting for reduced shareholder value, even though a comprehensive analysis requires competitive conditions within the conglomerate, i.e., shareholders...

The Impact of Financial Crisis on the Economic Values of Financial Conglomerates