Background Considerations to a Re-regulation of the U.S. Financial System: Third Time a Charm? Or Strike Three?

Kregel, Jan

aftermath of the subprime mortgage crisis, the Federal Reserve converted section 13, paragraph c of the March 21, 1933 Amendment to the Glass-Steagall Act into a permanent feature of its lender of last resort function through the discounting of the mortgage assets of investment banks and other capital market institutions such as primary and broker dealers. This has brought forth suggestions that the same prudential regulations that are applied to deposit takers be extended to investment banks and broker/dealers, while leaving the 1999 Gramm-Bliley-Leach Financial Services Modernization Act unchanged. The former U.S. Treasury Secretary, Henry Paulson, had also recommended consolidation and extension of the writ of certain regulatory agencies. However, the history of financial regulation in the United States suggests that this would simply be a repeat of the reactions, by legislators and regulators, to two previous financial crises, neither of which has proved durable or capable of providing financial stability.



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April 8, 2011