The Current State of Banking Reform

Abstract

Banking reform, or changes in banking regulations because of dissatisfaction with existing regulations, has been on the political agenda since the earliest days of the United States. This reflects a number of factors, including:

• Banking is an old industry that has existed throughout US history;

• Banking has always been under some government regulation and control;

• Banks provide a large part of the country’s money supply, changes in which affect economic welfare importantly and are viewed as a government responsibility;

• Banks have periodically performed poorly causing large losses to depositors, disruptions to borrowers, and societal damage;

• Banks are the single largest supplier of total credit to the economy and also the largest supplier of credit to a number of important individual sectors and perceived to have the power to ‘make or break’ house-holds and business firms in need of credit; and

• Widespread fear of excessive economic power by banks.

An earlier draft was presented at a conference on Financial Prosperity in the 21st Century, Jerome Levy Economics Institute of Bard College, Annandale-on-Hudson, New York, 4–6 March 1993.