Research seminars

Transformation of Corporate Scope in US Bank Holding Companies: Patterns and Performance Implications

Finance

Speaker: Nicola Cetorelli
Federal Reserve Bank of New York

9 November 2016 - S211 - From 2:00 pm to 3:15 pm


This paper presents the first population‐wide study of the transformation in the business scope of US banks over the last 25 years. Using a novel database containing the time series details of the entire organizational structure of individual bank holding companies, we analyze the evolution of the boundaries of the US banking firm. We document an extremely dynamic industry, where the vast majority of banks pursue a wide array of scope‐transformation strategies, gaining control over diverse business subsidiaries that go well beyond the traditional confines of deposit‐taking and loan‐making, but also exiting from businesses they had entered before. At the industry level, this process of transformation shapes what constitutes the prevailing business model for a banking firm, with scale and scope increasing, and with popularity of particular types of subsidiaries waxing and waning over time, reflecting changes in the underlying technology of financial intermediation. We first duplicate existing research on banks’scope that had relied on listed companies, and confirm that diversification and scope expansion, on the whole, impact performance negatively. We then move beyond existing research by looking at the mode of diversification, considering divestitures, and looking at the specific industries into which banks expand. Due to the breadth of our data, we can track the de facto “modal” business model in terms of subsidiary composition in the sector. We find that firms whose expansion keeps them closer to the “modal bank” are better off compared to those pursuing generic diversification. Likewise, firms that move into “hot” activities, which is where their peers have been investing recently, also benefit. Acknowledging the potential influence of both technological evolution and pressures for conformity with industry trends, we unpack the dynamics of scope expansion over time. We find that early expanders into particular activities actually benefit more—whereas late adopters, rather than benefitting by “fitting the norm,” lose out. Our research thus provides a more nuanced view of the benefits and costs of bank diversification, pointing to the importance of sector‐level transformation and underlining the difference between early and late innovators in terms of changing business scope.

Finance

Speaker: Xavier Gabaix

13 June 2019 - T104 - From 2:00 pm to 3:15 pm


Finance

Speaker: Adriano Rampini

23 May 2019 - T105 - From 2:00 pm to 3:15 pm


Finance

Speaker: Luke Taylor

16 May 2019 - T105 - From 2:00 pm to 3:15 pm


Finance

Speaker: Jessica Jeffers

18 April 2019 - T104 - From 2:00 pm to 3:15 pm


Finance

Speaker: Emil Verner

4 April 2019 - T104 - From 2:00 pm to 3:15 pm



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