Commercial banks as underwriters: implications for the going public process

Commercial bank entry into securities underwriting can affect underwriter b ehavior because, unlike investment houses, banks also lend to firms. This r aises several issues. Are banks better certifiers of firms' securities than investment houses? If banks hold equity in firms rather than debt, does th is make certification more credible? Would one type of underwriter drive ou t the other? This paper provides a model for analyzing such issues, and der ives several interesting results. First? banks, as lenders to firms, can ac tually be better certifiers than investment houses. Second, equity holding can hinder banks' certification ability. Finally, banks and investment hous es can co-exist. (C) 1999 Elsevier Science S.A. All rights reserved.