Market evidence on the opaqueness of banking firms' assets

We assess the market microstructure properties of U.S. banking firms' equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence indicates that large bank holding companies (BHC), traded on the NYSE, have very similar trading properties to their matched nonfinancial firms. In contrast, smaller BHCs, traded on NASDAQ, trade much less frequently despite having very similar spreads. Analysis of HIES earnings forecasts indicates that banking assets are not unusually opaque; they are simply boring. The implications for regulatory policy and future market microstructure research are discussed. (C) 2003 Elsevier B.V. All rights reserved.