THE LONG-TERM DEFAULT PERFORMANCE OF BANK UNDERWRITTEN SECURITY ISSUES

The Glass-Steagall Act of 1933 barred commercial banks and their affil iates from underwriting and dealing in securities activities, amidst c oncerns that banks abused the trust of their depositors and clientele by systematically underwriting poor quality security issues. This pape r examines if these concerns were justified by studying the long-term default performance of bank underwritten issues as compared to non-ban k underwritten issues. The evidence shows that, contrary to convention al wisdom, bank underwritten issues defaulted less than non-bank under written issues, over a seven year period from the issue date and had a significantly lower mortality rate.