
Contents
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Introduction Introduction
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The Liberalization of the US Financial Sector in the 1980s The Liberalization of the US Financial Sector in the 1980s
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Regulatory Background Regulatory Background
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New Business Areas New Business Areas
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Branch Banking Branch Banking
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Interest Rate Relaxation Interest Rate Relaxation
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Real Estate Lending Real Estate Lending
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Entry Entry
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Deposit Insurance Deposit Insurance
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Failure Resolution: The Rise of the ‘Too-Big-to-Fail’ Doctrine Failure Resolution: The Rise of the ‘Too-Big-to-Fail’ Doctrine
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Capital Requirements and Basel I Capital Requirements and Basel I
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Rationale for Deregulation Rationale for Deregulation
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Consequences and Legacy of the 1980s Deregulation Consequences and Legacy of the 1980s Deregulation
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Increase in Non-Interest Income Increase in Non-Interest Income
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Concentration Concentration
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Deposit Insurance Deposit Insurance
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Failure Resolution: The ‘Too-Big-to-Fail’ Doctrine Failure Resolution: The ‘Too-Big-to-Fail’ Doctrine
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Further Real Estate Lending Deregulation Further Real Estate Lending Deregulation
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Derivatives Investment Derivatives Investment
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Monetary and Fiscal Policies Monetary and Fiscal Policies
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Continuing Deregulation Continuing Deregulation
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Increasing Instability Increasing Instability
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International Comparison: Canada International Comparison: Canada
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Conclusion Conclusion
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2 The Advent of a New Banking System in the US: Financial Deregulation in the 1980s
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Published:May 2021
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Abstract
The 1980s was one of the most eventful and consequential decades in the development of the US financial system. During this decade, the regulatory framework established in response to the Great Depression started to be dismantled. These regulatory changes were a key driving force behind the transformation of the banking sector. Moreover, the end of the decade saw the most serious banking crisis since the Great Depression. This pattern of deregulation and crises, which started in the 1980s, has continued until the present. Thus, it is worth study this period in greater detail and the consequences it has had for the US banking and financial system. The chapter argues that the deregulatory process that started in the 1980s in the banking industry in the United States has changed the profile of this sector. Between the Great Depression and the 1980s, the banking sector in the United States was a stable, yet not competitive sector. The financial deregulation of the 1980s changed this sector to a competitive, yet unstable one. This deregulatory process occurred mostly as a response to the economic conditions of the 1970s.
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