Journal of Financial Intermediation Vol. 3 No. 1 1993
The Failure of Drexel Burnham Lambert: Evidence on the Implications for Commercial Banks
Abstract
We argue that since bank loans and publicly traded sub-investment-grade debt, or junk bonds, are close substitutes for one another, the recent failure of Drexel Burnham Lambert created a competitive opportunity for commercial banks. Consistent with this hypothesis, we observe within the commercial banking industry a positive wealth effect associated with Drexel′s failure. The distribution of the wealth effect across commercial banks and Drexel′s investment banking rivals is consistent with the wealth effect being primarily a reflection of market expectations of a return to traditional intermediated funding of sub-investment-grade debt. Journal of Economic Literature Classification Number: G2, Financial Institutions and Services.
- DOI
- 10.1006/jfin.1993.1004
- Volume
- 3
- Issue
- 1
- Pages
- 104-137
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex