From 1933 until recently, banks were heavily regulated by
the Federal government and the states. Market forces and changes
in technology erased previous barriers to competition between
banking and other financial service institutions. A process of
deregulation began in the mid '70s which gained force in the '80s
and '90s. The most onerous regulatory burdens on the banks have
been lifted; however, the future shape of the residual regulation
and the rationalization of the regulatory structure will largely
depend on action by Congress. Meanwhile, many competitors of the
of the banks remain substantially unregulated.
The Regulatory Rubric of the '30s and Its Origins
The reserve requirements and controls over bank interest
rates and other facets of national monetary policy have been the
within the purview of the Federal Reserve System ("FRS") since it
was established in 1913. Banking was otherwise relatively free
of governmental regulation until 1933. In that year the Banking
Act of 1933 (the "Banking Act") was enacted. Government action to
protect depositors and to stabilize the banking system came about
because 10,000 out of America's 27,000 banks failed between 1928
and 1933.1 Most banks which failed were small, rural ones which
lacked the capital necessary to withstand the adverse effects of
the Great Depression. However, hearings held in 1931-1932 before
the Pecora subcommittee of the Senate Banking and Currency
Committee focused especially on the 591 large banks which had
dominated the securities underwriting market in the '20s. It
concluded that substantial bank credit had been "diverted to the
to the securities markets, creating the rampant speculation that
èpreceded the 1929 Crash" and that "when the banking and
securities industries were commingled, the conflict of interest
and concentration of economic power create...