September 1998
Federal Reserve Bank of Dallas

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How Might Financial Institutions React to Glass-Steagall Repeal? Evidence from the Stock Market
David P. Ely and Kenneth J. Robinson

Passage of the Glass-Steagall Act in 1933 separated commercial and investment banking activities in U.S. financial markets. After several unsuccessful attempts in Congress to repeal Glass-Steagall, the Federal Reserve Board more than doubled the revenue commercial banking organizations may earn from certain securities activities. David Ely and Kenneth Robinson use this increase as a proxy for how repeal of Glass-Steagall might affect financial institutions. The authors' results show that the stock market reacted favorably to the revenue-limit increase for banking organizations already active in securities activities. The stock price of investment banks, as a group, did not seem to be significantly affected. However, the authors find some evidence that smaller, more profitable investment banks' stock prices reacted positively to commercial banks' greater securities powers. This result is consistent with these investment banks' greater attractiveness as takeover targets.

Managing Cross-Border Settlement Risk: The Case of Mexican ADRs
Sujit "Bob" Chakravorti

The Mexican securities clearance and settlement system is ahead of many markets in terms of having one of the shortest settlement periods. However, cross-border transactions-such as those involving American Depositary Receipts-have tended to be associated with a greater number of settlement fails than purely domestic transactions because U.S. and other foreign markets have longer settlement periods. This article investigates reforms to the Mexican securities clearance and settlement system that are aimed at improving liquidity and efficiency while maintaining safety and reducing both general and cross-border settlement fails. These reforms include penalties for late settlement and the establishment of an electronic lending facility. In addition, a proposed clearinghouse would bilaterally net securities transactions that involve the same type of security.