Abstract
This chapter questions the hypothesis that financial deregulation in the United States in the 1980s was a consequence of neoliberal influence applied to the financial sector. Our method based on the calculation of an annual index of financial liberalisation follows the IMF methodology. The analysis covers the period 1913–2013. The overall financial liberalisation index reveals that the process of financial liberalisation is unique in United States history, both in terms of temporality (1972–1999) and amplitude (the index rises from 0.42 to 1). Until the beginning of the 1980s, financial liberalisation appeared more as an a posteriori endorsement of the evolution of banking practices and of the circumvention of previous legislation, than as an assertive desire to restore the discipline of unfettered markets. However, it took a different turn in the mid-1980s and in the following two decades by relying on the self-regulation of market players based on their own internal control procedures. This “neo-liberal” turn can be explained by the adherence to the principles of market efficiency but also by the inability of policymakers to address the fragmentation of United States regulatory authorities.
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Notes
- 1.
Rancière et al. make a clear distinction between de jure and de facto indices of financial liberalisation.
- 2.
- 3.
This prohibits depository banks from speculating, either directly or through affiliation with any company “principally engaged” in the underwriting or trading of securities, except for the underwriting of government securities.
- 4.
See the Securities Act of 1933 and the Securities Exchange Act of 1935 which established the Securities and Exchange Commission (SEC).
- 5.
The Banking Act of 1935 gave the Fed its current form: the Board of Governors of the Fed has the power to adjust the reserve requirement rates of member banks; the Federal Open Market Committee (FOMC) sets open market policy for the entire system.
- 6.
The Trust Indenture Act (1939), the Investment Company Act (1940) and the Investment Advisers Act (1940) completed the regulation of mutual funds and investment advisers.
- 7.
These are: (i) the Office of the Comptroller of the Currency (OCC) for national banks and federal savings associations; (ii) the Federal Reserve for Fed member state banks; (iii) the FDIC for non-member state banks and state savings associations.
- 8.
See the Douglas Amendment (12 U.S.C. §1842(d)) to the Bank Holding Company Act of 1956.
- 9.
See Code of Federal Regulation, Part 225 (Regulation Y).
- 10.
- 11.
Timberlake (1985) points out that the cost of reserve requirements imposed by the Fed had led many member banks to leave the system. This flight meant a loss of the Fed’s control over the entire banking system.
- 12.
GLBA repeals Sects. 20 and 32 of the Glass-Steagall Act.
- 13.
See Fig. 10.1.
- 14.
- 15.
The OCC focused on strengthening the freedom of banking competition. The FDIC worked to protect the deposit insurance fund. The Fed took a less clear-cut position.
- 16.
Between 1980 and 1994, 46 states relaxed their laws to allow foreign bank holding companies to acquire local banks.
- 17.
The Competitive Equality Banking Act of 1987 provided for recapitalising the Federal Savings and Loan Insurance Corporation. Two years later, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which authorised the use of taxpayer funds to resolve failed thrifts. In 1991, the Federal Deposit Insurance Corporation Improvement Act was aimed at limiting regulatory discretion in monitoring and resolving industry problems.
- 18.
The phrase “there is no disagreement…” [that the Glass-Steagall Act must be repealed] is used six times in a single paragraph.
- 19.
Neither Alan Greenspan, Treasury Secretary Robert Rubin, nor his successor Lawrence Summers wanted to curb the expansion of credit risk transfer products.
- 20.
- 21.
According to the methodology for constructing the index (see Abiad et al., 2008), the “banking supervision” dimension is zero over the entire pre-Basel period, even though prudential regulation exists. This explains why the banking supervision dimension is not affected by the GSA in 1933.
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Appendix: Financial Liberalisation Scores of the Index Dimensions (Author’s Elaboration)
Appendix: Financial Liberalisation Scores of the Index Dimensions (Author’s Elaboration)
See Figs. 10.2, 10.3 and 10.4.
Scores for “Entry barriers” and “Supervision” of the banking sectorFootnote
According to the methodology for constructing the index (see Abiad et al., 2008), the “banking supervision” dimension is zero over the entire pre-Basel period, even though prudential regulation exists. This explains why the banking supervision dimension is not affected by the GSA in 1933.
Scores of “Credit controls” and “Interest rates Controls”
Scores of “Security markets” and “Capital inflows”
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Lévy, N. (2022). Was United States Financial Liberalisation in the 1980s Inspired by the Neoliberal Model? (1913–2013). In: Lévy, N., Chommeloux, A., Champroux, N.A., Porion, S., josso, S., Damiens, A. (eds) The Anglo-American Model of Neoliberalism of the 1980s. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-12074-9_10
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