Week InReview: August 5, 2016

"Glass-Steagall divided the world intellectually into two distinct financial arenas, securities markets and banking. Securities markets were subject to the regulatory authority of the SEC, whose major tools were disclosure and enforcement; the banking agencies oversaw banks using a strategy of prudential oversight. Legal specialization aligned this way; so did academic work." However... "in the ensuing decades, an increasing share of financial activity took place in the large space of functional overlap between banks and securities markets." Since those activities were securities markets, "the principal regulatory tool was disclosure, even though the core activity was maturity and liquidity transformation, the sort of activity that we have learned from banking requires prudential oversight for stability." In conclusion, "[t]he consequence of this regulatory mismatch was a massive increase in systemic risk." Mike Konczal arguing against a naive approach to breaking up the banks by bringing back Glass-Steagall, quoting Jeffrey Gordon of Columbia Law School

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