3 essays on universal banking

This dissertation comprises three essays, two theoretical and one empirical. The focus is on intermediary behavior and performance, specifically with respect to the scope of an intermediary's activities.; Essay 1: On bankers and their incentives under universal banking. In the absence of agency, scope economies in the combination of lending with other forms of financial intermediation may enable multitasking "universal bankers" to provide intermediation services more efficiently than specialist commercial and investment bankers. But the incentives of a multitasking banker are different from those of a specialist. This chapter develops a multitasking principal-agent model of universal banking to study these incentive effects and identify what activities are optimally combined with lending and under what circumstances.; Essay 2: On the choice between discretionary and non-discretionary lending. A lender may choose between using hard, quantifiable information to make lending decisions centrally (non-discretionary lending) and relying on the judgment of loan officers, who use soft information (discretionary lending). This chapter studies how this choice affects, and is affected by, prevailing economic and competitive conditions.; Essay 3: The "dominant bank effect": how high lender reputation affects the information content and terms of bank loans. Three large banks control over half of the US commercial loan market by volume through the syndication process. Using two estimation procedures to control for the endogeneity of lender-borrower matching, this chapter shows that the borrower stock price response to a loan announcement is substantially more favorable if one of these dominant banks is the lender but can be reduced by conflicts with securities underwriting. The chapter then shows that these banks charge lower interest rates and are more likely to lend without the protection of a borrowing base, suggesting that the "dominant bank effect" arises from superior screening and monitoring ability.