Financial deregulation
금융 자유화
Policy that lifts the limits the state has placed on what banks and securities firms may do, the interest rates they may pay, the debt they may take on and the products they may deal in, and leaves these to the market. From the 1980s it spread as one pillar of neoliberal policy. In the United States the Gramm–Leach–Bliley Act of 1999 repealed the core provisions of the Glass–Steagall Act, which had separated commercial and investment banking after the Great Depression, and the Commodity Futures Modernization Act of 2000 left over-the-counter derivatives unregulated. It is counted among the main causes of the 2008 financial crisis.
In depth
After the Great Depression the United States bound finance tightly, to stop banks from taking deposits, putting them into risky securities and failing. The so-called Glass–Steagall provisions of the Banking Act of 1933 separated commercial banks, which take deposits, from investment banks, which underwrite and deal in securities, and deposit rates were capped. This framework held without a major financial crisis into the 1970s.
From the 1980s these limits were lifted one by one. The Depository Institutions Deregulation and Monetary Control Act, signed by President Carter in 1980, phased out several restrictions on banks and raised the deposit insurance limit from $40,000 to $100,000. The Garn–St Germain Act, signed by President Reagan in 1982, allowed adjustable-rate mortgages and began banking deregulation in earnest, contributing to the savings and loan crisis of the late 1980s. Meanwhile the financial sector rapidly increased its share of the economy, its profits and its political power.
In 1998 the commercial bank holding company Citicorp merged with the insurer Travelers to form Citigroup. The merger violated the Glass–Steagall Act, but the Federal Reserve granted a temporary waiver, and a year later, in November 1999, the Gramm–Leach–Bliley Act signed by President Clinton made combinations of banking, securities and insurance permanently legal. In 1998 the chair of the Commodity Futures Trading Commission, Brooksley Born, had tried to review the regulation of over-the-counter derivatives, but Federal Reserve chairman Alan Greenspan, Treasury Secretary Robert Rubin and SEC chairman Arthur Levitt objected. In December 2000 the Commodity Futures Modernization Act placed over-the-counter derivatives such as credit default swaps outside the oversight of the CFTC and the SEC. In 2004 the SEC exempted the five largest investment banks from the net capital rule, allowing them to take on much more debt.
After the 2008 crisis views divided on how much financial deregulation was to blame. The majority report of the Financial Crisis Inquiry Commission and the economist Barry Eichengreen saw the deregulation of financial markets as a root of the crisis, and noted that AIG's collapse was made possible by the effective absence of regulation of over-the-counter derivatives. Joseph Stiglitz called the effect of the Glass–Steagall repeal "indirect", pointing to the spread of investment-bank culture into commercial banks. Others play the repeal down, since Bear Stearns and Lehman Brothers, at the centre of the crisis, were investment banks that the act had never covered. Marxists see financial deregulation as part of financialisation, the growth of the financial sector and the economy's growing dependence on finance. The Dodd–Frank Act of 2010 reversed the direction, tightening the regulation of over-the-counter derivatives and the supervision of large financial institutions.