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Economic Regulation and Its ReformWhat Have We Learned?$
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Nancy L. Rose

Print publication date: 2014

Print ISBN-13: 9780226138022

Published to Chicago Scholarship Online: January 2015

DOI: 10.7208/chicago/9780226138169.001.0001

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Regulation and Deregulation of the US Banking IndustryCauses, Consequences, and Implications for the Future

Regulation and Deregulation of the US Banking IndustryCauses, Consequences, and Implications for the Future

Chapter:
(p.485) 8 Regulation and Deregulation of the US Banking IndustryCauses, Consequences, and Implications for the Future
Source:
Economic Regulation and Its Reform
Author(s):

Nancy L. Rose

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226138169.003.0009

The banking industry has been subject to extensive government regulation covering what prices they can charge, what activities they can engage in, what risks they may take, what capital they must hold, and where they can operate. This chapter summarizes the evolution of these regulations, with a focus on those established in the 1930s and later removed in the late 20th century. The authors argue that regulatory change was driven by technological, legal, and economic shocks that affected competition among different groups. The role of both private and public interests play a key role in the analysis. The authors also describe the consequences of certain types of banking regulation and deregulation for both the financial services industry and the economy. The industry adapted to the regulatory constraints imposed in the 1930s, thus partially reducing the costs of regulatory distortions. On the one hand, banking efficiency increased following deregulation, and this generated some benefits for the economy as a whole. On the other hand, some aspects of market adaptations also led to the emergence of shadow banking and increasingly opaque interconnections within the financial system that contributed to the fragilities that resulted in the 2008 financial crisis.

Keywords:   banking industry, economic regulation, banking regulation, deregulation, public interest, regulatory constraints, banking efficiency, Glass-Steagall Act

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