Question

Can you give an example in the U.S. history about deregulation of banks? And please describe the likely (positive or/and negative) effect of your example on banking industry.

Answer 1

Banks pursued deregulation in the 1980s to allow them to compete internationally with less regulated financial firms in the overseas regions. Both were asking Congress to overturn the 1933 Glass-Steagall Act. This banned retail banks from using deposits to finance risky bond purchases. This shielded investors from risk and fraud, like other financial regulations.

Banks received their wish in 1999. Glass-Steagall was repealed by the Gramm-Leach-Bliley Act. In exchange, the banks agreed that they would only invest in low risk securities. They said that this would diversify their portfolios and that their clients 'risk. Alternatively, financial firms have invested in risky derivatives to raise income and shareholder value.

Pros

The barriers to entry in many sectors are reduced to small or new businesses, promoting creativity, competitiveness and expanded customer choice.
The free market sets prices which are believed by some to encourage production.
It increases business productivity and reduces customer prices.
Industries are more able to create monopolies, which in effect have their own pros and cons.
According to the National Association of Manufacturers, the legislation costs $2 trillion in missed economic growth.

Cons

Asset bubbles are more likely to develop and burst, causing recessions and crises.
Industries with initial capital costs need funding from government to get going. Examples include the cable and energy industries.
Clients are further vulnerable to corporate fraud and unnecessary risk-taking.
Public issues have gone missing. Companies for example neglect environmental harm.