Taming the megabanks : why we need a new Glass-Steagall Act /
Wilmarth, Arthur E.,1951-author.
"This book uses a chronological and narrative approach and draws on a wide range of sources. It demonstrates that universal banks - which accept deposits, make loans, and engage in securities activities - played central roles in precipitating the Great Depression of the early 1930s and the Great Recession of 2007-09. Universal banks promoted a dangerous credit boom and speculative stock market bubble in the U.S. during the 1920s, which led to the Great Depression. Congress responded by passing the Glass-Steagall Act of 1933, which separated banks from the securities markets and prohibited nonbanks from accepting deposits. Glass-Steagall's structural barriers prevented financial panics from spreading across the banking, securities, and insurance sectors for more than four decades. Regulators could address problems arising in one financial sector without needing to bail out the entire financial system. Large U.S. banks pursued a twenty-year campaign to remove Glass-Steagall's barriers. Regulators opened loopholes in Glass-Steagall during the 1980s and 1990s, and Congress repealed Glass-Steagall in 1999. The United Kingdom and the European Union adopted similar deregulatory measures. Large U.S. securities firms became "shadow banks" as regulators allowed them to issue short-term deposit substitutes to finance long-term loans and investments. Universal banks and shadow banks fueled a toxic subprime credit boom on both sides of the Atlantic during the 2000s, which led to the Great Recession. The limited reforms that followed the Great Recession did not break up universal banks and shadow banks. Those reforms left in place a financial system that is prone to excessive risk-taking and vulnerable to contagious panics. A new Glass-Steagall Act is urgently needed to prevent another systemic crisis and restore a more stable and resilient financial system"--
Includes bibliographical references and index.
Introduction -- Origins : the emergence of universal banks in early twentieth-century America -- Frenzy : universal banks helped to promote an unsustainable boom in the U.S. economy during the 1920s -- Foreign affairs : sales of risky foreign bonds by universal banks produced a hazardous foreign lending boom -- Crash : universal banks played central roles in the stock market boom and crash and the onset of the Great Depression -- Nemesis : the universal banking model failed during the banking crises of the Great Depression -- Reckoning : universal banks were discredited by the Pecora investigation and abolished by the Glass-Steagall Act -- Resurgence, part I : federal agencies and courts opened loopholes in the Glass-Steagall during the 1980s and 1990s -- Resurgence, part II : Congress enacted three statutes that enabled big banks to build nationwide financial conglomerates -- See no evil : policymakers and regulators allowed financial conglomerates to inflate a toxic credit bubble on both sides of the Atlantic during the "roaring 2000s" -- Déjà vu : reckless lending and securitization by financial conglomerates triggered a global financial crisis in 2007 -- Bailouts without end : governments provided massive bailouts to rescue universal banks and shadow banks during the financial crisis -- Unfinished business : post-crisis reforms have not removed the systemic dangers posed by universal banks and shadow banks -- Conclusion: The case for a new Glass-Steagall Act.
"This book uses a chronological and narrative approach and draws on a wide range of sources. It demonstrates that universal banks - which accept deposits, make loans, and engage in securities activities - played central roles in precipitating the Great Depression of the early 1930s and the Great Recession of 2007-09. Universal banks promoted a dangerous credit boom and speculative stock market bubble in the U.S. during the 1920s, which led to the Great Depression. Congress responded by passing the Glass-Steagall Act of 1933, which separated banks from the securities markets and prohibited nonbanks from accepting deposits. Glass-Steagall's structural barriers prevented financial panics from spreading across the banking, securities, and insurance sectors for more than four decades. Regulators could address problems arising in one financial sector without needing to bail out the entire financial system. Large U.S. banks pursued a twenty-year campaign to remove Glass-Steagall's barriers. Regulators opened loopholes in Glass-Steagall during the 1980s and 1990s, and Congress repealed Glass-Steagall in 1999. The United Kingdom and the European Union adopted similar deregulatory measures. Large U.S. securities firms became "shadow banks" as regulators allowed them to issue short-term deposit substitutes to finance long-term loans and investments. Universal banks and shadow banks fueled a toxic subprime credit boom on both sides of the Atlantic during the 2000s, which led to the Great Recession. The limited reforms that followed the Great Recession did not break up universal banks and shadow banks. Those reforms left in place a financial system that is prone to excessive risk-taking and vulnerable to contagious panics. A new Glass-Steagall Act is urgently needed to prevent another systemic crisis and restore a more stable and resilient financial system"--
Universal banks.
Banks and banking, International.
Banking law.
Securities.
Organizational change.