Limitations on the Business of Banking

Using a simulation model, the study examines the impact to states and national BHCs if allowed greater participation in securities (segmented into securities brokerage and investment banking), insurance (brokerage, life insurance underwriting, and property-casualty underwriting), or real estate (segmented into five industries ranging from brokerage to development). Utilizing accounting earnings and market return data from 1971 to 1989, this paper determines the upper-bound of diversification benefits if greater participation were allowed. This study complements previous studies which, by their random-merger design, determine the lower-bound of diversification benefits. The results support controlled expansion into insurance and securities activities. Regarding insurance and securities, the evidence indicates more caution for expansion into greater securities than insurance activities because of investment-level sensitivity. The results do not support increased real estate powers.