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On the other hand, it is easier for a bank that provides a loan to sense when insurance is necessary.Since most people already have a bank account, customer as well as agents have to be motivated to deal with another financial institution or to switch.The article projects that banks would add 5-10 percent to their after tax profits if "they aggressively pursue their insurance opportunity." The author develops a pro forma statement for banks selling 12 different insurance items.
The stock prices of banks, both small and large, seemed to be unaffected by the new legislation while thrifts, finance companies and foreign banks lost value.
This paper is conceptually similar to the one cited above, in that the author investigates whether the announcement of a merger between Citicorp and Travelers abnormally impacted stock prices of financial and insurance companies.
Despite the adoption of the Gramm-Leach-Bliley Act (also called Financial Services Modernization Act) in November 1999, there have been few strategic attempts in consolidating financial and insurance businesses and some of them (i.e.
the Citigroup / Travelers or the General Electric / Employers Re. This, despite the fact that some of the research papers cited in the attached literature review do identify diversifications gains from potential consolidation of banking and insurance firms.
The paper stands out because it shows, unlike other earlier research, that property and casualty insurance companies offer larger diversification gains to banks than life insurance companies.
The authors first summarize previous literature that examined motives for combining bank and other financial services.
The authors investigate how the passage of the Financial Services Modernization Act of 1999 (FMA) affected stock prices of banks, thrifts, finance companies and insurance companies.
The study looks at stock excess returns across sectors and company size.
One hundred and thirty five applications were made between Jan.1, 1997 and May 31, 2001.
Insurance banks have an uphill battle to convince their customers to establish a bank account because it is hard to determine when and why an insurance customer needs a bank account.