How the Deregulation of Banks Caused the Great Recession of 2008
How the Deregulation of Banks Caused the Great Recession The recession of 2008, which we are only just starting to come out of, happened as a result of a few major factors. The primary factor was the deregulation of banks during the Bush administration. Another factor was that banks offered loans without looking into the financial stability of borrowers or businesses. Also, credit unions, savings and loans, and banks entered into competition with each other. The Security and Exchange Commission, S.E.C., reduced requirements so that banks could pile up debts. Banks first became regulated in the 1930 when Franklin D. Roosevelt became president. When Roosevelt became president, “the fed government intervened deeply into the ‘banking business,’ which was defined by the IRS, FDIC, Comptroller of the Currency, SEC (if public-owned), and State Bank Supervisors etc. By defining what the ‘business of banking’s was the statutes, regulations, and enforcement personnel administering these laws, bankers were boxed into doing business as defined by state and federal governments.” (Ritholtz) Between the 1930s and 1969, two successful banks were prohibited from merging together. The only time that two banks could merge, is if one successful bank were to absorb an unsuccessful or failing bank. Banks officially became deregulated in 1999 when the Gramn-Leach-Bliley Act repealed the last parts of the Glass-Steagall Act of 1933, which was the part that didn’t allow banks to offer investment, commercial banking, and insurance services. The Glass-Steagall Act of 1933 prohibited commercial banks from participating in the investment banking business. It was passed as an emergency measure so that the failure of almost 5,000 banks during the Great Depression would not be repeated.
Without the regulations that banks once had, they could pile up debt without any repercussions. It also allowed firms like Citigroup and Bank of America to offer investment and insurance
Without the regulations that banks once had, they could pile up debt without any repercussions. It also allowed firms like Citigroup and Bank of America to offer investment and insurance
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