Restraints on Competition and Political Necessity as Explanations

Abstract

There is reason to believe that an important reason for the legal separation of commercial and investment banking was a political demand or at least a willingness by both investment and commercial bankers to eliminate competition for a shrinking market and to secure other benefits and avoid more restrictive legislation. In particular, investment bankers not affiliated with commercial banks had incentives to bar their rivals from the investment banking business; many commercial bankers were no longer interested in securities operations; and by this ploy bankers could relatively inexpensively assuage demands by the public, legislators, and the Roosevelt administration for reform.