Glass-Steagall and the Regulatory Dialectic

Congress, the Administration, and the bank regulatory agencies are considering various proposals to usher the U.S. banking system into the twenty-first century. The pace of financial innovation spurred by advances in information technology, globalization of the economy, and competition from other financial institutions-has made this reform seem long overdue. However, any clear understanding of the causes and consequences of the reform movement must recognize that some of the financial innovations that have sprung up over the last three decades were specifically designed to avoid regulations that current reform efforts may repeal.