Is Bank Regulation Necessary?
Banks in the United States are the said to be the beneficiaries of several government programs that confer advantages not provided to other industries. As the Gramm-Leach-Bliley Act moved through Congress, much of the debate centered on the question of whether those benefits, which constitute a government safety net for banking, could be transferred to subsidiaries or affiliates in nonbanking businesses. The debate about the safety net raised a deeper question: whether the existence of the safety net—which is perceived to create risks for the government—is the basis for the regulation of banks, or whether other policy reasons justify this special treatment. If the government’s safety-net risks are the principal reason for bank regulation, then bank regulation could be eliminated or substantially reduced if the safety net were eliminated or transferred to the private sector. Scholars agree that the safety net consists of three elements: deposit insurance and the Federal Reserve’s roles
