The US Banking System: Deregulation Of The Financial Sector

The panic of 1907 and the Great Recession of 2007-2009 has both been major economic events in the United States economic history. This paper compares and contrasts these two major events and enables us to understand importance of certain financial institutions and regulations during troubled times in the financial sector. In this paper, both panics of 1907 and 2007 are historically analyzed and compared.

The twenty year charter placed on the First Bank of the United States was done to quell/mitigate the worries of many Americans that a national bank was unconstitutional and would provide too much power to the central government, because once the twenty year period is up, the American people and congress can evaluate the bank’s performance and decide if it served all of its purpose accordingly, and if not, they could choose to not renew the charter for the bank. This exact mechanism/method of mitigating corruption was placed on the Second Bank of the United States, and at the end of its twenty year charter, it was clear that the bank had served to regulate and stabilize the United States’ economy by providing loans to citizens to start businesses, farms, plantations, providing opportunities for international investments and profits; which all served to strengthened the national economy and defense of the

The banking industry consists of almost sixty-five hundred banks that are insured by the Federal Deposit Insurance Corporation (FDIC). Out of these, there are eighty-one substantially large banks in the United States that are publically traded, which is where the market structure and industry information will be based. However, as with the rest of the country, these banks are very concentrated, with the largest banks accounting for over half of the market as well as accounting for the largest amounts of revenue.

The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implement policies intended to offset factors negatively affecting the general financial health of the country.

In doing so, Bruner and Carr are better able to elucidate the ways in which individual actors caused the rapid decline of the American economy in late 1906. In this, Bruner and Carr begin the text by highlighting the influences and magnitude of the major players in the financial services sector in the early twentieth century. Perhaps the most notable of the those mentioned is that of J. Pierpont Morgan, the Wall Street Oligarch for which the contemporarily “too big to fail” financial services entity J.P Morgan-Chase is named. In highlighting these individuals and their over-inflated influence on the financial system, Bruner and Carr subtlety highlight one of the biggest problems facing the financial services sector during this time period—the lack of regulation. To further elucidate this point, the books opening chapter follows the interactions between J.P Morgan and his other colleagues in George F. Baker, president of the First National Bank of New York and James Stillman, president of New York’s National City Bank. Here, the text focuses on the ways in which they inconspicuously competed and colluded with each other to make their fortunes larger and more

As we go into our research on the financial crisis of 2007, we will try to answer some questions about what actually cause of the failure of our financial system, which almost collapse the dollar. While there are plenty of faults to go around on what cause this crisis, there was never a clear path on how to reverse the demand that was cause by repealing the Glass-Steagall Act of 1933. Although there has been other regulations and acts pass since the repeal of the Act of 1933, the ability to restore and strength our dollar has been an uphill battle to take control of it. What was known within our economic system to readjust and rebuilt

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

The American financial system before the Federal Reserve came along in 1913 was tragic. With the economy on the rise, growing

In the history of the United States, we have experienced numerous financial crisis, where millions have been affected. Some of them include the great depression in 1929, World War II, and recently the financial crisis of 2008. The government has tried to learn from these past events and implement new procedures that would prevent from occurring once again. However, it seems like there is always something new to learn from when these type of events occurs. As such, the government always tries to addressed the issues, but in some instances are praised and in some criticized. Two of the most important legislature that have been passed in order to prevent financial crisis and protect the consumers and the economy of the United States are the

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

While financial banks were inadequately controlled by regulatory agencies, there was a necessity for fresh policies to resolve these issues. Prior to the Volcker Rule becoming implemented, the crooked financial activity done at the time had affected the clients of the banks. The complexity of the regulations caused dissatisfaction for the clients and customers and eventually affected the overall business flow of the bank institutions. There was a strong need for new procedures and restrictions before the banking industry would have another breakdown and in the worst case, cause another financial crisis within the American economy. The biggest problem during this crucial financial time included how the banking industry was consistently earning large amount of money from these high-risk trades with the institution’s own

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

The goal of financial regulation is to increase efficiency in the market, as well as enhance the market 's ability to absorb shock caused by financial instability. There are many reasons for financial instability, but it can be narrowed down to

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of