Discuss the changes in regulations of financial firms during the 1990 and whether the proposed benefits occurred.
What will be an ideal response?
During the 1990 a series of legal changes were made to allow financial firms to offer a variety of services. Previously, the Glass-Steal Act of 1933 required that Wall Street separate high-risk and low-risk activities across financial firms. Commercial banks were only allowed to make low-risk loans like home mortgages and business loans. A different set of firms engaged in high-risk undertakings, like stocks, derivatives and other investment banking. After the changes 1990 any firm could offer either the low- or high-risk ventures. The expected benefits of the change included increased convenience for consumers and improved financial stability. During the 2007 recession, it was apparent the benefit of increased convenience held, but improved stability did not. Many firms had consolidated and few major financial institutions were deemed “too big to fail.”
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