The long-term default performance of bank underwritten security issues

The Glass-Steagall Act of 1933 barred commercial banks and their affiliates from underwriting and dealing in securities activities, amidst concerns that banks abused the trust of their depositors and clientele by systematically underwriting poor quality security issues. This paper examines if these concerns were justified by studying the long-term default performance of bank underwritten issues as compared to non-bank underwritten issues. The evidence shows that, contrary to conventional wisdom, bank underwritten issues defaulted less than non-bank underwritten issues, over a seven year period from the issue date and had a significantly lower mortality rate. © 1994.

Duke Scholars

Author Manju Puri Fuqua School of Business