What Economic History Teaches US About Financial Regulation: the Example of the United States

The deregulation of the financial system that began in the United States in the late 1970s and then spread across the world profoundly transformed financial markets, financial institutions and institutional investors. Financial services markets became increasingly integrated, leading to competition among financial institutions and producing a profusion of new products and processes, including securitization. The 2007 crisis was the product of financial deregulation and liberalization policies practiced since the 1980s. Its fierceness justified the adoption of new regulations in the form of the Dodd-Frank Act of 21 July 2010. The economic history of regulation in the United States teaches us that in times of prosperity, financial euphoria is born at the same time as risk aversion declines in markets. Techniques for circumventing regulation emerge, spread and gradually lead to the unraveling of existing regulations. The euphoria-deregulation-crisis-regulation chain appears. Financial regulation, the rules that are imposed on the actors of the financial system, and the supervisory measures that verify the application of these rules, is not an option but a necessity if we appreciate that financial stability is a common good that must be preserved.