Identify the procompetitive effect of banks' expansion of their securities activities.
A)Reduces the degree of underpricing of new issues.
B)Encourages stuffing of fiduciary accounts.
C)Increased provision of cheap loans on the implicit condition that this loan is used to purchase securities.
D)Use of lending powers by a bank to coerce a customer to buy the products sold by its securities affiliate.

Question

Quizplus · Accepted Answer

Banks' expansion of their securities activities can lead to a reduction in the degree of underpricing of new issues. This is because banks can use their expertise in underwriting securities to accurately price new issues and offer them to the market at a fair price. This can increase competition in the market, which is a procompetitive effect.

The other options are not procompetitive effects. Option B refers to the unethical practice of stuffing fiduciary accounts, where an entity in control of a client's assets buys and sells securities solely to generate commissions, without regard for the client's best interests. Option C refers to the practice where banks provide cheap loans to customers on the implicit condition that the loan is used to buy securities, which can be risky for the customer. Option D refers to the use of lending powers to coerce customers to buy products sold by the bank's securities affiliate, which is an anti-competitive practice.

Identify the Procompetitive Effect of Banks' Expansion of Their Securities