The History of TBTF

Abstract

Looking at the historical record, we can see that regulation has worked in the past by reducing risk and boosting consumer confidence. The historical record is depicted in Figure 2.1, which shows the number of bank failures in the U.S. over the period 1864–2000. Until 1933, the U.S. experienced banking panics roughly every 15 to 20 years. In the 1930s the Great Depression struck and the banking system nearly collapsed. In response to a dire situation, the Roosevelt administration engineered sweeping regulatory measures, including the introduction of federal deposit insurance, securities regulation, banking supervision, and the separation of commercial and investment banking under the Glass-Steagall Act. The regulatory measures resulted in the stability of the U.S. financial system over much of the 20^th century. For some 50 years, the country experienced no major financial crises, the longest such period on record.