Marion L. Chiattello [1] has provided additional empirical support for the suggestion that, because of the high degree of linear interdependence between many of the variables commonly used in banking regression studies, it may be necessary to interpret explanatory variables in a cross-sectional regression equation, not as representing individual influences, but as representing more general factors. Further, he has provided more empirical support for the suggestion that principal component analysis might be useful in helping to isolate and identify some of these general factors.

Robert J. Saunders, On the Interpretation of Models Explaining Cross Sectional Differences Among Commercial Banks, The Journal of Financial and Quantitative Analysis, Vol. 4, No. 1 (Mar., 1969), pp. 25-35

Anthony Saunders, Michael Smirlock, Intra- and Interindustry Effects of Bank Securities Market Activities: The Case of Discount Brokerage, The Journal of Financial and Quantitative Analysis, Vol. 22, No. 4 (Dec., 1987), pp. 467-482

Thomas S. Y. Ho, Anthony Saunders, Fixed Rate Loan Commitments, Take-Down Risk, and the Dynamics of Hedging with Futures, The Journal of Financial and Quantitative Analysis, Vol. 18, No. 4 (Dec., 1983), pp. 499-516

This paper has developed a model of bank margins or spreads in which the bank is viewed as a risk-averse dealer. It was demonstrated that an interest spread or margin would always exist, and that this was the result of transactions uncertainty faced by the bank. Moreover, it was shown that this pure spread depended on four factors: the degree of managerial risk aversion; the size of transactions undertaken by the bank; bank market structure; and the variance of interest rates. The model implied that liability and asset structures had to be analyzed together since they were directly interrelated through transactions uncertainty. It was shown that because of this transactions uncertainty, hedging behavior was perfectly rational within an expected utility maximizing framework. Extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as “portfolio” effects may become apparent.

This paper examines the effect of commercial bank entry on underwriting spreads for IPOs, SEOs, and debt issues using a long time series that spans 30 years, from 1975 to 2004. We find that, on average, commercial banks charge lower spreads of approximately 72 basis points for IPOs, 43 basis points for SEOs, and 14 basis points for debt over the entire sample period. The economic impact of commercial banks on lowering underwriting spreads is most significant when commercial banks were allowed to enter via Section 20 subsidiaries but persists beyond. Commercial bank entry into underwriting appears to have a procompetitive effect that lasts many years after their initial entry.

Anthony Saunders, Charles Ward, Richard Woodward, Stochastic Dominance and the Performance of U. K. Unit Trusts, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 2 (Jun., 1980), pp. 323-330