ABSTRACT
As in the early 1980s, the debate about financial reform in the United States centers on how to eliminate the legal restrictions that prevent US banks from competing in today’s marketplace while at the same time controlling the moral-hazard problem that is present with mispriced federal deposit guarantees. Despite a long history of sporadic periods of severe banking difficulties, the United States continues to search for solutions to financial-sector problems that have been perpetuated by legal restrictions that foster a fragmented banking system. Much of the US financial structure that is currently in place originated in the aftermath of the Great Depression. Deposit insurance was introduced in the United States ostensibly to accomplish two objectives. Excessive competition in the deregulated environment of the 1980s has been cited by industry experts as an important causal factor behind many of the banking difficulties that emerged in the 1980s.
