Banking and commerce in the United States (original) (raw)
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The Separation of Banking and Commerce in the United States: An Examination of Principal Issues
Financial Markets, Institutions and Instruments, 1999
Banking law and regulation in the United States have customarily restricted the nonbanking activities of banks and the banking activities of nonbanking firms, producing a separation of banking from commerce. While such separation is surprising in a free market system that, in general, permits private firms to engage in any lawful business, it is understandable in an historical and institutional context. Proposals for change raise a wide range of economic and other issues. This paper identifies, catalogues, and elaborates these issues to provide a framework for informed judgment and further investigation. It begins with a review of early restrictions on bank activities in the United States and contrasts U.S. developments with those in several other countries in which banks have not been separated from commercial and industrial firms. It, then, reviews relevant issues arising in the financial sector, commercial sector, related to central banking and supervision, and socio-political concerns. It concludes that limited banking, as it exists in the United States, and universal banking, as it exists in other countries, have differential benefits and costs. Summary evaluation based on standard cost benefit analysis, however, presents serious difficulties. Considerable uncertainty remains about effects in a number of areas. Many of the costs and benefits are not quantifiable, and some that are quantifiable are incomparable. A careful review of all existing evidence, identification of gaps, and further investigation is needed. 14 This section and the following section draws on Shull, 1994.
Alternative Forms of Mixing Banking with Commerce: Evidence from American History
Financial Markets, Institutions and Instruments, 2003
Much of the discussion about banking and commerce in America has failed to make several crucial distinctions and has not accounted for many arrangements that have promoted the mixing of these activities. We investigate the history of banking and commerce in the United States, looking both at bank control of commercial firms and commercial firms' control of banks. We trace how these controls have changed with shifting definitions of ''bank'' and changing methods of ''control.'' Despite the regulations prohibiting some arrangements that promote financial control, we find evidence of extensive linkages between banking and commerce in the United States. These linkages usually build on devices that are very close substitutes to the arrangements prohibited by law. Altogether, our findings question the often made claim that traditionally banking in the United States has been separated from commerce. Furthermore, given that research on Japan and Germany has shown that the mixing of banking and commerce matters for a variety of issues, our evidence also raises some questions on similar research in the United States which makes the simplifying assumption that these industries are separated.
Is Commercial Banking a Distinct Line of Commerce? L Y NN W. WOOSLEY
these propositions assume that the market for all bank services is local and that the market is for services offered only by banks. This approach allows analysts to merge all products and services into a single "cluster of services" for analysis of competition. 1 The concept of such a cluster of services, and the underlying ideas about the market for such services, is facing serious challenges, however. Since 1984 the U.S. Federal Reserve has taken a somewhat broader view by acknowledging savings and thrift institutions as local suppliers of banking services and including them in their competitive analysis; typically, though, these institutions are assigned a lesser weight than commercial banks in order to reflect their lower levels of expertise in providing some components of the cluster (Woosley 1995). In addition, some perceive that as bank services have evolved toward electronic distribution, as in the case of mortgages, and remote distributionthrough credit cards, for example-the set of services distributed locally is smaller (Ausubel 1991; Jackson 1992; Hymel 1994). Indeed, increases in types and locations of competitors have cast doubt on whether a cluster of services exists at all. 2 These changes have induced the U.S. Department of Justice to do separate analyses of small business lending in the consolidations that it analyzes (Board of Governors and U.S. Department of Justice 1995; U.S. Department of Justice and Federal Trade Commission 1997; Kramer 1999). 3 Other evidence seems to support the conclusion that the demand for small business loans is largely confined to local financial institutions and that lenders serve only areas fairly close to their physical location (
Bank Regulation in the United States
CESifo Economic Studies, 2010
There have been major changes in the banking system structure and several new banking laws over time that have had major impact on banks in the USA. In response to the 1980s and early 1990s crisis, and the more recent mortgage market meltdown that began in the summer of 2007, the banking industry and regulations governing banks changed profoundly and rapidly with even more changes likely to take place. It is therefore important to delineate the nature of these changes, particularly in comparison to the pre-crisis character of the US banking system and regulatory environment. In particular, this article discusses the regulatory changes that have emerged in response to the decline in the role of banks in firms' external financing, and the rise in noninterest-generating activities; the blurring of distinctions between banks and other depository institutions, and between banking companies and other financial intermediaries; the growing complexity of banking organizations, both in a corporate hierarchy sense, and with respect to the range of activities in which they can engage; the more intense globalization of banking; and the subprime mortgage market meltdown that triggered a credit crunch and liquidity freeze that led to the worst recession in the USA since the Great Depression. (JEL codes: G21, G28 and G01)
From exceptional to normal: changes in the structure of US banking since 1920
Financial History Review, 2020
A century ago the US commercial banking system was exceptional in two ways. It was by good measure the largest commercial banking system of any country. And it was different from the commercial banking systems of other leading countries in having tens of thousands of independent banks with very few branches rather than the more typical pattern of a far smaller number of banks with many branches. Today, a century later, the US system is more normal than exceptional, dominated by a small number of very large banks with extensive branch systems. This article describes the US banking-structure transition from exceptional to normal. It closes with an interesting contrast of US and European banking developments.
Brazilian Keynesian Review
Based on the Post-Keynesian approach, we argue that commercial banks, through the financial reforms of 1980 and 1999, which made financial institutions more flexible, increased their capacity to operate in the capital market by becoming Banking Financial Holding Companies. The 2007/2008 crisis is understood as a consequence of financial deregulation and financial innovation process that weakened the Federal Reserve's capacity to restrain banking activity. Initially, we discuss the new institutional context that emerged from these changes in the financial regulatory framework between 1980 and 1999. Then, we focus on how financial deregulation allowed banking business to advance in financial markets, how this process contributed to the economic crisis of 2007, characterized both as a liquidity crisis and a solvency crisis, safeguarded by the National States. Finally, we analyze the Dodd-Frank Law (2010), which is interpreted as the reaffirmation of this endogenous process of finan...
The Repeal of Glass-Steagall and the Advent of Broad Banking
2000
Enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999 effectively repealed the long-standing prohibitions on the mixing of banking with securities or insurance businesses and thus permits "broad banking." Since the barriers that separated banking from other financial activities have been crumbling for some time, GLBA is better viewed as ratifying, rather than revolutionizing, the practice of banking.
1992
Rapidly changing technology, financial innovation, and increased linkages among the world’s financial markets pose many challenges for commercial banks, other financial firms and markets, and their public regulators. History suggests, however, that while the challenges we face today may be unique, many are not fundamentally dissimilar from the problems others have faced in the past. For example, regulators now confront the issue of whether and, if so, how to regulate the issuance of private electronic money. In the nineteenth century, the private issuance of banknotes raised a similar regulatory question. A second example is the current problem, for banks, of increased competition from nonbank financial firms and markets that is associated with regulatory and technological change. As Eugene White points out in the first article in this Review, banks faced a similar challenge in the nineteenth century. The twenty-second annual economic policy conference of the Federal Reserve Bank of...
Bank Regulation in the United States -super-1
Cesifo Economic Studies, 2010
There have been major changes in the banking system structure and several new banking laws over time that have had major impact on banks in the USA. In response to the 1980s and early 1990s crisis, and the more recent mortgage market meltdown that began in the summer of 2007, the banking industry and regulations governing banks changed profoundly and rapidly with even more changes likely to take place. It is therefore important to delineate the nature of these changes, particularly in comparison to the pre-crisis character of the US banking system and regulatory environment. In particular, this article discusses the regulatory changes that have emerged in response to the decline in the role of banks in firms' external financing, and the rise in noninterest-generating activities; the blurring of distinctions between banks and other depository institutions, and between banking companies and other financial intermediaries; the growing complexity of banking organizations, both in a corporate hierarchy sense, and with respect to the range of activities in which they can engage; the more intense globalization of banking; and the subprime mortgage market meltdown that triggered a credit crunch and liquidity freeze that led to the worst recession in the USA since the Great Depression.
Varieties of Banking and Regional Economic Development in the United States, 1840–1860
The Journal of Economic History, 1975
It is sometimes asserted that a laissez-faire policy toward financial intermediaries tends to deepen financial development and accelerate economic growth. The two decades preceding the American Civil War provide a challenging case for this proposition because they witnessed something approaching a natural experiment. During those years the Federal government withdrew from the regulation of banking, a policy that was the final outcome of Andrew Jackson's war with the Second Bank of the United States. A wide range of experiments concerning entry into commercial banking were tried, from “free” banking to “socialized” banking. Moreover, other kinds of legislation affecting banking varied from state to state as well. While the regions of the United States differed in terms of economic structure, a common language, a common legal tradition, and, to some extent, a common culture permeated all regions. Thus, the period provides excellent conditions for observing the effects of financial...