Financial Integration and Scope Efficiency in U.S. Financial Services Post Gramm-Leach-Bliley

The Gramm-Leach-Bliley (GLB) Act of 1999 largely removed the barriers that forced separation between commercial banks, investment banks, and insurance companies in the U.S. and promised the most fundamental reform of U.S. financial services regulation in more than half a century. In this study we construct a unique dataset that links the U.S. banking and insurance regulatory datasets. Doing so allows us to identify newly formed domestic “assurbanks” (insurers owning banks), “bancassurers” (banks owning insurers), and all the unique subsidiaries licensed either as commercial banks, thrifts, or insurance companies. We use this data set to investigate efficiency effects from possible economies of scope across the two formally separate sectors by estimating multi-product costs, revenue, and profit functions. The empirical evidence suggests that a significant number of cost scope diseconomies, revenue scope economies, and weak profit scope economies exist in the post-GLB U.S. integrated banking and insurance sectors. The scope economies are variant among firms, and certain firm characteristics are the determinants of scope economies.