Deregulation and the Financial Crisis
The Wall Street Journal had a piece this week about the Gramm-Leach-Bliley (GLB) Act of 1999. This is the first time I have read a detailed explanation of why GLB was not a contributing cause of the current financial crisis.
GLB repealed part of the Glass-Steagall Act (from Great Depression times) and allowed banks, securities companies and insurance companies to affiliate under a financial services holding company.
The WSJ article points out:
1) If GLB were the problem, the crisis would have originated in Europe where they never had Glass-Steagall;
2) The financial firms that failed, like Lehman, were the least diversified while those that survived, like JP Morgan, were the most diversified; and
3) GLB did not deregulate anything but established the Federal Reserve as a super-regulator overseeing all Financial Services Holding Companies. All activities of financial institutions continue to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.
