Deregulation Policies During The 1980s

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1. Introduction
While there were many factors leading to the 1980s crisis of the Savings and Loans (S&L) industry, regulatory failure can be regarded as the most influential factor leading to the crisis. Believing in invisible hand as a solution to the initial signs of crisis in the market created further market failures and only worsened the situation.
However, not many acknowledged the role of these regulatory failures in the crisis even after the 1980s. The deregulation policy was continued thereafter leading to complete dismantling of the Glass Steagall Act in 1999, the impact of which came out as the subprime crisis in the 1st decade of the 21st century.
In the following sections, I will give a brief background of the emergence of the …show more content…

Among the thrifts, while the large (influential) thrifts were supporting for deregulation, the small thrifts were unwilling to expose themselves to the interest rate competition. Besides these internal problems, US financial system faced issues because of the Euro dollar market and interest rate competition from international banks. In 1972, there were 104 foreign bank offices in the US holding assets worth $25 billion. By 1980, assets over $170 billion were held in 340 foreign banks . With funds flowing out of domestic borers, dollar value started to dwindle. In order to address the dollar crises and the other aforementioned issues, US came out with its two major deregulatory acts -
(i) Depository Institutions Deregulation and Monetary Control Act of 1980:
a) It removed the power of the Federal Reserve Board of Governors under the Glass–Steagall Act to use Regulation Q to set maximum interest rates for any deposit accounts other than demand deposit accounts (with a six-year phase-out).
b) Allowed institutions to charge any loan interest rates they choose.
c) Raised the federal deposit insurance from $40,000 to $100,000 (making it easier for even troubled or insolvent institutions to attract deposits).
(ii) Garn-St. Germain Depository Institutions Act of …show more content…

This bill eliminated restrictions on interstate banking and branching. Finally the Gramm-Leach-Bliley Act of 1999 repealed the Glass-Steagall Act completely. The wave of deregulation was so strong that in the anticipation of annulment of the Glass-Steagall Act, in April of 1998 Travelers Insurance Group and Citicorp, the parent of Citibank, announced their plans to merge and form Citigroup, Inc that became the world’s largest financial services company, formed by the largest corporate merger in history, at that

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