The Impact of Financial Structure and Regulation on Economic Activity...

Chapter 2: Issues in the Evolution of Federal Regulation

The Interaction of Macroeconomic and Financial Developments in the

1970's.......

85

Changes in Demands for Financial Services....

105

The Legislative Stalemate: 98th Congress, Second Session.

Senate bills...

The House Banking Committee bills............

115

116

117

Chapter 4-Continued

The Legislative Stalemate-Continued

The Wirth Moratorium/Capital Markets Commission bill

The Energy and Commerce Subcommittee bill

Legislative Action in the 98th Congress....

Comparison of the House and Senate bills.

Legislative Initiatives in the 99th Congress.....

The Financial Institutions Equity Act of 1985.

The Depository Institutions Acquisition Act..

Industry Views and Responses

Summary and Conclusions

PART II: THE GOALS OF REGULATION

Page

118

119

120

121

125

126

126

127

131

Introduction

137

Chapter 1: Access to Capital and Credit

Introduction and Summary..

141

An Overview of the Federal Government's Role in Financial Markets...

The Effects of Interest Rate Deregulation on Credit Flows.

149

Macroeconomic effects..

150

Institutional effects: bank service charges and branch closings

Some Product and Structural Changes That Alter Financial Flows

Brokered deposits......

151

157

158

Interest payments on insured transactions accounts

Money market mutual funds, money market deposit accounts

Nonbank banks..

160

161

162

The Absence of Market Innovations to Facilitate Capital Formation.......................

Summary of Policy Concerns.

Chapter 2: Balancing Competition and Soundness: The Debate on Bank De-

Chapter 3: Promoting Competition and the Impartiality of Credit Decisions

Introduction: Specialization and Diversity Versus Consolidation..

Consolidation as an Impediment to Impartiality..

Consolidation and Financial Stability: The Role of Banks.

Implications of a link between financial consolidation and concentra-

tion......

Summary of Policy Concerns.

Chapter 4: Preserving the Economic Functions of Financial Markets

Introduction: An Overview of Financial "Missions"

Capital Investment Trends in the United States....

169

171

175

179

182

186

190

192

194

197

203

207

210

211

213

217

219

221

224

226

240

243

245

251

255

Page

Chapter 4-Continued

Developments in U.S. Capital and Credit Markets

258

The impact of macroeconomic policy and interest rate ceilings

Short-term borrowing and variable interest rates

Declining liquidity and increased risk..

263

264

265

Developments in the equity market....

266

Changes in the Structure and Economic Functions of Capital Markets.....

Discount brokerage......

266

266

The role of institutional investors.....

269

The impact of mergers, takeovers, leveraged buyouts, and corporate

stock repurchases....

274

Innovative and derivative securities products

280

Mortgage-backed securities and the emerging market for securitized

debt......

285

Summary of Policy Concerns

290

PART III: PROTECTING CUSTOMERS OF FINANCIAL INSTITUTIONS

Introduction and Summary....

295

Chapter 1: Regulation to Ensure Soundness and Fiduciary Standards

"Bank-like" activities of securities firms.

Similarities between insurance and securities products.

Disparities Between State and Federal Regulation......

Expanded state powers for depository institutions.

Interstate banking..

302

303

306

306

307

313

315

317

319

322

The Implications of the Internationalization of Capital Markets for Inves-

tor Protection

Chapter 3: Financial Guaranty Insurance Programs

An Overview of Financial Guaranty Insurance Programs

Deposit insurance

The Securities Investor Protection Corporation

State insurance guaranty funds

The Pension Benefit Guaranty Corporation..

Erosion of the Rationale for Differences in Protection..

The Adequacy of Financial Guaranty Insurance Programs

The Securities Investor Protection Corporation.

The Conflicting Goals of Deregulation and Insurance Protection.

337

339

340

345

345

346

346

347

348

350

350

351

356

359

361

Proposals to Reconcile Deposit Insurance Protection and Market Disci-

pline

363

Appendix B: Some Effects of International Capital Flows on U.S. Credit

Markets

377

Appendix C: Initiatives of the Subcommittee on Telecommunications, Con-

sumer Protection and Finance

379

Subcommittee hearings: 1981-83..

379

Subcommittee hearings: 1984..

383

Purposes and priorities of deposit insurance coverage

Summary of activities in 1985.

Appendix D: Reforming the Federal Deposit Insurance Programs.

Assessing government exposure and the adequacy of fund reserves

The potential for abuse by institutions and depositors.....

The allocative impact of deposit insurance on savings and credit flows.......

Figure 1.-Housing Starts.

ILLUSTRATIONS

Figure 2.-Changes in the Stock of Private Residential Housing.

389

396

397

397

398

398

96

96

Figure 3.-The Framework of Financial Regulation.

300

Table 1.-Selected New Securities Issues.....

124

Table 2.-Banks' Current and Prospective Shares of Securities Issues

125

Table 3.-Some Regulatory and Structural Strategies Affecting Access to

Credit and Capital........

147

Table 4.-Comparison of Concentration Ratios of Major Financial Services

Sectors....

Table 9a.-Summary Breakdown of 37 Largest Institutional Investors

Table 9b.-Sectoral Breakdown of 37 Largest Institutional Investors

Table 10.-National Income and Net Fixed Nonresidential Investment.

Table 11.-Funds Raised in U.S. Financial Markets..

Table 11a.-Percentage of Total Credit Absorbed by Various Sectors...

Table 12.-Funds Supplied in U.S. Credit Markets.

238

239

255

259

260

261

Table 12a.-Percentage of Total Funds Supplied by Various Sectors.

Table 13.-Corporate Stock Issues-Common and Preferred.

Table 13a.-Change in Corporate Stock Ownership.

262

275

275

Table 14.-Increase in Stocks of U.S. Financial Assets for Selected Periods.......

Table 15.-Averages of Annual Ratios of Funds Raised by Selected Sectors to

Total Funds Raised in U.S. Credit Markets and to GNP: In Percent, 1950-84

Table 16.-Funds Raised/Supplied in U.S. Credit Markets by Domestic and

Foreign Sectors as a Percent of GNP.

Chart A.-Established Market Participation Among Financial Institutions.......
Chart B.-Selected Diversified Financial Conglomerates

372

375

377

200

201