US Financial Market Deregulation Policy, Preparatory...

US financial market deregulation policy

Preparatory phase of the paradigm shift

The 1970s. The last century for the United States was years of serious economic easing. The war in Vietnam was excessively expensive for their economy, competitors from Western Europe and Japan crowded American banks and corporations not only in world markets, but also in the US itself. The American press sounded alarm about the fact that the country "occupied" Japanese, German, French and other banks and corporations. At the same time, the situation on the labor market was extremely unfavorable: unemployment grew, inflation was high; narrowed the ability to maneuver in international markets due to the weak competitiveness of American goods and services. In such a situation, the President-Democrat Jimmy Carter created the presidential commission on the financial structure and state regulation, headed by Khant. She had to develop and submit to the president proposals on reforming the financial and economic policy American government. In a report presented by the Hunt Commission in 1972, such recommendations were made, they included the following provisions:

1) cancellation of the upper limits of interest rates on deposits;

2) payment of interest on demand deposits;

3) elimination of differences between commercial banks, savings and credit institutions;

4) the ability to organize banks with branches operating in one state or in different states;

5) concentration of all regulatory and supervisory functions at the federal level in one state institution.

The proposals proposed by the Hunt Commission by the president-democrat were not accepted at the time - they were too different from his ideological base. But they were widely circulated by lobbyists of large banks and corporations that had long been pursuing a policy of deregulation, since the system of state regulation created since Franklin Roosevelt did not allow them to dramatically increase their profits. The same ideas developed within the framework of the neoclassical approach of the Chicago School, which was in irreconcilable contradictions with the Keynesian school, then dominant in US economic policy. Their time came with accession to the White House by Ronald Reagan.

Deregulation Act

The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIGMA) was passed by the US Congress in 1980. It states that this is the most extensive legislative act pertaining to the banking system and financial market, since the adoption of the Federal Reserve Act and the Laws on Banks in 1933 and 1934. The new law was adopted in conditions when high interest rates in the United States encouraged financial institutions to issue a number of competing financial instruments to raise funds. The law consisted of nine sections, and it contained ten most important provisions:

1) for all depository organizations, the required reserve ratio should be 3% from the first $ 25 million in deposit accounts and 12% from deposits in excess of $ 25 million;

2) Interest rate ceilings (in particular rule A) should be phased out over the next six years;

3) The Committee on Deregulation of Depository Institutions is established to monitor the gradual cancellation of ceilings of interest rates;

4) loan-saving institutions are granted the right to expand their credit facilities and are allowed to invest up to 20% of their assets in consumer loans, commercial paper ( commercial paper) and bonds issued by corporations

5) full legalization of the NAU account (interest check current accounts) is provided and a single ceiling of interest on them is introduced. The check and share accounts of credit unions, bank accounts with automatic transfer of funds and electronic banking terminals (computer banking machines working with credit cards and located outside the bank's premises) were also legalized;

6) The Fed is given the right to set prices for its services;

7) banks that are not members of the Fed are allowed to place their reserves in accounts with member banks of the Federal Reserve System

8) state laws on usury that limit interest rates on various types of loans are canceled for all creditors with federally insured deposits;

9) Federal marginal rates of loan interest are tied to the rates of the Fed;

10) Loan conditions are simplified.

The law introduced many other changes in what later became known as the financial services industry. The goal of all changes was the improvement of the competitive environment in which the financial institutions operated, and the improvement of control over the money supply by the Fed.

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