Commercial Banks in the Securities Business: A Review

This paper analyses the potential effects of commercial banks' expansion into the securities business in the context of the contemporary theory of financial intermediation. The analysis focuses on the gains claimed to emerge with that expansion, particularly the gains due to information advantages and economies of scope, and on the costs also claimed to arise with it; namely, those due to conflicts of interest and safety and soundness considerations. The paper ends with a discussion on how these effects depend on the location of the securities unit within the banking conglomerate.