Cross-border impact of the Financial Services Modernization Act: evidence from large foreign banks

This article investigates the impact of the Financial Services Modernization Act (FSMA) on foreign banks. We find that the banking sectors of most developed countries experience significant negative spillover effect. However, the impacts on any two countries' banking sectors are not identical. Most importantly, we show that exposure to systematic risk with respect to the world equity index can explain the cross-sectional variation of the wealth effects. We also find that larger banks are more adversely affected.