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DEREGULATION REDUX

CONTENTS

Expansion of banking activities: “Shatterer of Glass-Steagall”.............................
Long-Term Capital Management:
“That’s what history had proved to them” .....................................................
Dot-com crash: “Lay on more risk”......................................................................
The wages of finance: “Well, this one’s doing it, so how can I not do it?”..............
Financial sector growth:
“I think we overdid finance versus the real economy”....................................

EXPANSION OF BANKING ACTIVITIES:
“SHATTERER OF GLASSSTEAGALL”
By the mid-s, the parallel banking system was booming, some of the largest
commercial banks appeared increasingly like the large investment banks, and all of
them were becoming larger, more complex, and more active in securitization. Some
academics and industry analysts argued that advances in data processing, telecom-
munications, and information services created economies of scale and scope in fi-
nance and thereby justified ever-larger financial institutions. Bigger would be safer,
the argument went, and more diversified, innovative, efficient, and better able to
serve the needs of an expanding economy. Others contended that the largest banks
were not necessarily more efficient but grew because of their commanding market
positions and creditors’ perception they were too big to fail. As they grew, the large
banks pressed regulators, state legislatures, and Congress to remove almost all re-
maining barriers to growth and competition. They had much success. In  Con-
gress authorized nationwide banking with the Riegle-Neal Interstate Banking and
Branching Efficiency Act. This let bank holding companies acquire banks in every
state, and removed most restrictions on opening branches in more than one state. It
preempted any state law that restricted the ability of out-of-state banks to compete
within the state’s borders. 
Removing barriers helped consolidate the banking industry. Between  and
,  “megamergers” occurred involving banks with assets of more than  bil-
lion each. Meanwhile the  largest jumped from owning  of the industry’s assets
