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VOLUME 1, NUMBER 2, 2002
AUTHOR:
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Kenneth
J. Robinson
Senior
Economist and Policy Advisor, Federal Reserve Bank of Dallas
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TITLE:
Banks
Venture into New Territory (PDF)
ABSTRACT:
Financial modernization
legislation passed in 1999 allows banking organizations to directly invest
in any type of company. This merchant banking authority gives banks greater
opportunities to provide venture capital to start-up companies and later-stage
equity financing to more mature firms. Kenneth Robinson examines how banks
have pursued their new merchant banking powers. Robinson finds evidence
that organizations that engage in merchant banking tend to be larger than
those that do not. His findings are also consistent with the hypothesis
that banks may be attempting to lower their average costs by combining
merchant banking with other nonbank activities. Allowing banking organizations
to pursue this new activity will provide them with an additional source
of earnings and greater diversification opportunities and will likely
increase private equity financing, which has been a vital component of
economic activity.
SUGGESTED
CITATION:
Robinson, Kenneth J.
(2002), "Banks Venture into New Territory," Federal Reserve
Bank of Dallas Economic and Financial Policy Review, Vol. 1, No.
2, www.dallasfed.org/research/efprpdfs/v01_n02_a01.pdf
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