Creeping financial deregulation leads to crises. Criticism of financial deregulation as envisaged by the Trump administration is to the point (“Is America heading for new financial typhoon?”, Letters, March 5).
That letter criticises, first, the present lending by non-regulated,
non-depository finance firms or shadow banks to private equity and private debt industries and, second, the borrowing by these shadow banks from banks. These borrowings have increased tenfold over the past decade. Recently, JPMorgan failed to report the amount of its lending to private equity (“JPMorgan fails to report level of lending to private equity”, Report, February 17).
This deregulation takes place in quiet times. Like during the Clinton administration when the Glass-Steagall Act was repealed. This act of 1933 forbade commercial banks from performing investment bank activities, like investment in securities. This repeal led to crises and bailouts for banks by the government. There also occurs deregulation during crises. Like the waiving of the limit on the amount of depositors’ money that is guaranteed by the Federal Deposit Insurance Corporation when Silicon Valley Bank failed in 2023.
Hyman Minsky, the American economist, put deregulation in a historical perspective in his book Stabilizing an Unstable Economy (1986). His central thesis is that US monetary authorities made the financial system gradually more vulnerable. How? By relaxing the rules during crises without restoring them afterwards.
Frank Boll
Rotselaar, Belgium
