ABSTRACT
This chapter argues that the bankers’ bargain, forged in the depression years of the 1930s, has been under pressure for the past twenty years. The stable postwar industrial world had ended—and with it the arrangements governing the relationship between states and financial markets, known as the bankers’ bargain. Territorial states and financial markets have had a tenuous, though mutually profitable, relationship throughout history. The increasing financial sophistication on the part both of individuals and firms—driven by fundamental changes in the structures of international production and financial intermediation—has undermined the possibility of discretionary policy changes. The Bretton Woods period provides the only example of an attempt to subject the financial markets and national governments to an internationally agreed set of rules and institutions. In response to new opportunities, financial institutions started to lobby for greater freedom to offer services internationally, a freedom restricted by remaining exchange controls and other restraints on openness.
