Gramm-Leach-Bliley Act (GLBA) was signed into law on November 12, 1999. This act is regarded as the most influential deregulation for the U.S. financial services industry in the past one-century. The purpose of this study is to determine and analyze the wealth effects of the GLBA on U.S. and foreign banks and insurance companies. This dissertation is composed of four separate essays. In the first two chapters I investigate the wealth effects of the GLBA on domestic banks and insurance companies. I find that Money Center Banks followed by Super Regional Banks benefit most from this deregulation. I also find that banks with Section 20 investment subsidiaries benefit more than rest of the industry. For all types of banks exposure to systematic risk reduces following the enactment of the GLBA. In cross sectional analysis I find that banks size and change in exposure to systematic risk can explain the wealth effects at firm level. In the domestic insurance industry, property/casualty and life insurance companies have the highest wealth effect. Exposure to systematic risk also reduces for all types of insurance companies following the enactment of the GLBA. From cross sectional analysis I find that diversification opportunities and safeguards against excessive risk taking create value for property/casualty and all other (except life) insurance companies. I also test merger related hypothesis. The result shows that poor performing firms and larger firms gain more form this deregulation. In the third and fourth chapter I investigate the wealth effects of the GLBA on international banks and foreign insurance companies. I find that the events leading to the passage of the GLBA have significant negative wealth effects (spill-over effects) on the portfolios of banks and insurance companies for most of the developed countries I analyze. These effects are not same for any two countries. Most importantly I find that reduction in diversification opportunities for international banks and foreign insurance companies in the U.S. market can explain the wealth effects at firm level from the GLBA.

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The Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act (GLBA), of 1999 has permitted U.S. bank holding companies (BHCs) to operate in non-banking activities that are financial in nature. This dissertation addresses the impact of this across-activity diversification within the U.S. financial services industry on the profitability and the risk-adjusted performance of bank holding companies. Using a variety of diversification measures, the study analyzes the relationship between corporate diversification and the financial performance of BHCs pre- and post-GLBA, from 1990 to 2011. The analysis of the profitability-diversification relationship provides evidence that the negative impact of revenue diversification on the profitability of banking firms that exists in the literature is mainly due to measurement and model specification issues. Failure to differentiate between interest-versus-noninterest and banking-versus-nonbanking types of revenue diversification has resulted in using measures of the first type of diversification to study the second, leading to inaccurate results. Moreover, introducing nonlinearity to the relationship between revenue diversification and profitability provides evidence that this relationship is negative only at relatively low levels of diversification but positive if the level of diversification is sufficiently high. Controlling for these measurement and model specification issues results in profitability premium, rather than discount, that is associated with higher levels of revenue diversification. The study also employs an event study methodology to measure how stock markets respond to mergers and acquisitions (M&As) in which BHCs acquire other banking and nonbanking financial targets. The cumulative abnormal returns (CARs) to acquirers and targets show that M&A that are either non-diversifying or diversifying within closely-related credit intermediation activities increase the value of merged firms. The effect of M&As that combine less-related financial activities on firm value is either negative or insignificant. This implies that market participants have better expectations of the future performance of less diversified firms in managing the risk-return trade-off. Comparing the average CARs of the pre- and post-GLBA eras supports this conclusion.

This project reviews Arrowhead Credit Union's Information Security Program structure and contents.