banks and thrifts waged a turf war against each other, but neither industry aimed its marketing guns or lobbying efforts at the securities industry. then along came money market mutual funds, or money funds. high interest rates during the late 1970s and early 1980s had a stunning effect on the flow of deposits into banks and thrifts. money fund shares issued by investment firms offered market interest rates and a high level of liquidity, through either immediate withdrawal or the ability to effect transactions by using payable - through drafts. by contrast, regulation q mandated low interest rates on passbook accounts, specific term restrictions on cds, and significant penalties for early withdrawal. money funds offered rates that were at times double the rates on passbook accounts. the banking industry had no products to counter the market appeal. even though money funds shares are not federally insured, billions of dollars flowed into the accounts. in 1981 alone, $ 109 billion flowed into money funds. after a tepid and wholly unsuccessful effort by bankers to restrict the growth of money funds, the banking industry began considering a different response. now that the securities industry had successfully breached the separation between banking and savings by allowing consumers to invest in money funds, the banking industry was forced to examine its fundamental marketplace role. during that period, i was the vice chairman, then the chairman, of the governmental relations committee of the american bankers association. at meetings held between 1980 and 1982, as many as 400 bankers representing institutions of all sizes and markets gathered to consider an industry response. congress's response to the growth of money funds was to pass the monetary control act of 1980 and the garn - st germain act of 1982. taken together, these laws, along with other provisions, eliminated many of the rate and term restrictions on banks'and thrifts'deposit taking and allowed both types of institutions to offer products that could match the rate and liquidity provisions of money funds. but it was clear to many bankers that a lasting response to marketplace changes would require more than just the removal of regulation q. bankers were seeking answers to such basic questions as " what is a bank? " and " what is the public purpose of banking? " jerry corrigan's essay proved to be a beacon of rationality in that discussion. are banks special? corrigan identified three characteristics that made banks special : - banks and only banks offered transaction accounts. that is, " they incurred liabilities payable on demand at par and are readily transferable by the owner

lingering questions about whether some pacific rim banks were too closely linked to certain commercial enterprises in the region, thus facilitating the asian financial crisis of the late 1990s. however, the u. s. banking industry had also developed improved ways to manage risk, and banking supervision had become more effective. in addition, the improved analytical capacity offered by new technology, better coordination among domestic and international bank supervisors, a healthy track record for u. s. banks, and the growth of consolidated home - country supervision across the world helped u. s. banks and their affiliates to further expand their commercial activities. the response of congress was essentially threefold. first, it moved the separation wall between banking and commerce to reflect what had already occurred in the marketplace : gramm - leach - bliley also addressed the broader question of what types of businesses could own or affiliate with banks by allowing companies to own banking, securities, and insurance entities within a structure known as a financial holding company. second, congress provided a way for banks to gain new - product authority when the new products were determined to be financial in nature, incidental to banking, or complimentary to existing banking authority. third, by clearly separating the federally insured entity - either banks or thrifts - - from the newer and potentially higher - risk new - product authorities, grammleach - bliley reaffirmed as a matter of public policy that banks continue to be regarded as special. but the act offers a clear acknowledgment that the separation of banking and commerce is not a bright line but is instead a negotiated compromise - - one that will continue to move as markets change and products are refined. the guiding consideration in this compromise will be the protection of the federal deposit insurance fund. are banks still special? much has changed in the banking landscape since corrigan wrote his essay twenty - four years ago. significant increases in international capital flows among bank and nonbank entities, in addition to a broad range of specialized financial instruments mean banks can no longer be considered the only source of transaction accounts. except for their access to the federal reserve discount window, banks are no longer the dominant provider of liquidity for other financial industries. but banks remain the key access point to the dominant wholesale payments network, and they still provide federally insured checking and savings deposits. with the rise of new financial services, products, and techniques, moreover, banks have expanded their role in providing liquidity in more indirect ways, for example, through sec