Consequences of Deregulation of Banks

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

. . .
BHC's, and the Comptroller of the Currency which regulates national banks. These agencies were forced to intervene directly in the affairs of some banks. Under "pacts" or agreements between those agencies and the troubled banks, capital and reserve requirments were tightened, dividend payments were suspended and other internal controls such as more frequent real estate appraisals were instituted. By 1994, a number of large banks such as Citicorp12 were in sufficiently strong condition to permit such restrictions to be eased. Commercial banks have been mismanaged in other ways. Deregulation has permitted them to compete in unfamiliar markets. Most banks have failed in investment banking. Some, such as Bankers Trust, have gotten into litigation over the losses in derivative securities suffered by their clients. The transition away from 9 to 5 routines and government subsidization has been painful. A major issue left before the Congress is how to rationalize and integrate the crazy-quilt pattern of regulatory oversight. = 7 É3
 èAs Jerry Knight of the Washington Post reported, "While some financial enterprise
. . .

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, march 1995, commercial banks, law review, june 1994, real estate, savings loan, wall street,  = 7, publishing company june, american banking york,
Approximate Word count = 3919
Approximate Pages = 16 (250 words per page)

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