Banking on Deregulation

Financial forecasters are saying that “superbanks” are the wave of the future. Superbanks will be very large banks, comparable in size to the giant financial institutions of Japan and Europe, and, like them, engaging in securities underwriting as well as traditional banking activities. The reason we don’t have such institutions is, essentially, the 1929 Crash, which was blamed in part on the entanglement of banking with the stock market. A federal law passed in 1933 broke up commercial and investment banking, erecting a wall that stood for decades. But that wall is now beginning to crack, as banks find ways around the law’s provisions. Hence the need for a comprehensive look at U.S. banking law.

A major proponent of cautious deregulation of U.S. banks is William Proxmire, chairman of the Senate Banking Committee. Proxmire supports a limited expansion of banking institutions’ powers, in order to promote competitiveness; earlier this year he was pushing for a measure to allow banks to enter certain other financial areas like mortgage-backed securities, commercial paper, and municipal revenue bonds. When this initiative was killed by Democrats on his committee, Proxmire reluctantly accepted Christopher Dodd’s proposal to put a moratorium on the expansion of bank powers by regulatory agencies until March 1, 1988.

JM

About the Author

John McLaughlin

Featured Tags

Financial forecasters are saying that “superbanks” are the wave of the future. Superbanks will be very large banks, comparable in size to the giant financial institutions of Japan and Europe, and, like them, engaging in securities underwriting as well as traditional banking activities. The reason we don’t have such institutions is, essentially, the 1929 Crash, which was blamed in part on the entanglement of banking with the stock market. A federal law passed in 1933 broke up commercial and investment banking, erecting a wall that stood for decades. But that wall is now beginning to crack, as banks find ways around the law’s provisions. Hence the need for a comprehensive look at U.S. banking law.

A major proponent of cautious deregulation of U.S. banks is William Proxmire, chairman of the Senate Banking Committee. Proxmire supports a limited expansion of banking institutions’ powers, in order to promote competitiveness; earlier this year he was pushing for a measure to allow banks to enter certain other financial areas like mortgage-backed securities, commercial paper, and municipal revenue bonds. When this initiative was killed by Democrats on his committee, Proxmire reluctantly accepted Christopher Dodd’s proposal to put a moratorium on the expansion of bank powers by regulatory agencies until March 1, 1988.