Repealing the Glass-Steagall Framework: Deregulatory Impact and Policy Considerations in Historical Context

Abstract

Repealing the Glass-Steagall Framework is a policy history of financial modernization as seen through the formulation and passage of the Gramm Leach Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000. Based on extensive historical research, this work reconstructs the evolving institutional, economic, and policy context leading up to the 106th Congress to explain why the Gramm Leach Bliley Act and Commodity Futures Modernization Act had significantly less deregulatory impact on the U.S. financial system than some critics claimed after the financial crisis of 2008. This broadly based analysis examines the constraints imposed by dynamic market conditions, the incremental repeal of untenable New Deal laws and regulations, as well as divergent corporate interests among large commercial bankers, securities broker-dealers, and insurers. It also considers the views of leading regulators and key congressional committee chairmen who misunderstood the systemic risk posed by increasingly complex and interrelated financial markets and relied on the evolving neoliberal ideological consensus to support their preferences for self-regulation and their efforts to restore U.S. global competitiveness. As a result, this research makes clear that the approach taken to financial modernization by the 106th Congress represented a historic missed opportunity to ensure the safety and soundness of the U.S. financial system by imposing regulations that properly accommodated new financial institutions, products, and markets such as over-the-counter derivatives. This dissertations represents groundbreaking research in public policy at the intersection of American Political Development and History of Capitalism.