Banking and Securities Deregulation Started in 1999

Back in 1999, Nader was opposed to deregulation of the financial services sector via a weakening of the Community Reinvestment Act, which was passed by a Republican Congress and signed by a Democratic President.  These bipartisan-approved changes allowed the intermingling of banks and securities that helped prepare the way for the current crisis.

Now Congress is icing down the champagne again in celebration of the new and much more grandiose deregulation package, this time of the entire financial services industry – combining banks, securities firms, and insurance companies (and in some cases, nonfinancial corporations) under common ownership in soon-to-be trillion-dollar conglomerates. In the process, Congress is creating a financial system designed for the affluent customer in which low- and moderate-income families and small businesses will face less access, fewer choices, and higher fees.

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Congress is wading into the deregulation swamp in good economic times with a roaring stock market and quarter after quarter of record financial profits – the worst possible time to ask Congress, with its short-term memory, to make tough decisions against the wishes of the industry. Amid the economic euphoria, it is little wonder that warnings about the safety and soundness of financial institutions, inadequate deposit insurance reserves and the weaknesses of an uncoordinated, overlapping and outmoded regulatory system are greeted with legislative yawns.

A study released by the Federal Deposit Insurance Corp. (FDIC) last month found that consolidation in the banking industry just between the years of 1990 and 1997 had “increased the risk of insurance fund insolvency by 50 percent.” The report warned that the risk had increased further during the past two years.

The risk of insolvency is “becoming inseparable from the health of the 25 largest banking organizations which control 54.5 percent of the assets,” the FDIC researchers found. These are the very institutions that will be combined with insurance companies and securities firms in the new, too-big-to-be-allowed-to-fail conglomerates.

But that wasn’t the kind of testimony sought by the House and Senate banking committees, which instead used the hearings largely for the purpose of painting simplistic rosy scenarios and providing a platform for the corporate executives, lobbyists, and campaign donors to promote the legislation.

Ralph Nader is founder of Public Citizen. This piece originally appeared in the Washington Post, Friday, November 5, 1999; Page A33.