banking: Deregulation, Bank Failures, and New Technology

Several deregulatory moves made by the federal government in the 1980s diminished the distinctions among various financial institutions in the United States. Two major changes were the Depository Institutions Deregulation and Monetary Control Act (1980) and the Depository Institutions Act (1982), which allowed savings and loan associations to engage in often-risky commercial loans and real estate investments, and to receive checking deposits. By 1984, banks had federal support in buying discount brokerage firms, and commercial banks were beginning to acquire failed savings banks; in 1985 interstate banking was declared constitutional.

Such deregulation was blamed for the unprecedented number of bank failures among savings and loan associations, with over 500 such institutions closing between 1980 and 1988. The Federal Savings and Loan Insurance Corporation (FSLIC), until it became insolvent in 1989, insured deposits in all federally chartered—and in many state-chartered—savings and loan associations. Its outstanding insurance obligations in connection with savings and loan failures, over $100 billion, were transferred (1989) to the FDIC.

Further deregulation occurred in 1999, when Congress overhauled the entire U.S. financial system. Among other actions, the legislation repealed the Glass-Steagall Act, thus allowing banks to enter the insurance and securities businesses. Supporters predicted that the measure would permit U.S. banks to diversify and compete more effectively on an international scale. Opponents warned that this deregulation could lead to failures of many financial institutions, as had occurred with the savings and loans, and many blamed banking deregulation for the financial crisis that began in 2007. Extensive government intervention was required to maintain financial stability, and the crisis nonetheless resulted in an increase in failed and troubled banks, with the number of troubled banks higher than it had been in 15 years by 2009.

In the last decades of the 20th cent., computer technology transformed the banking industry. The wide distribution of automated teller machines (ATMs) by the mid-1980s gave customers 24-hour access to cash and account information. On-line banking through the Internet and banking through automated phone systems and smartphone apps now allow for electronic payment of bills, the depositing of some checks, money transfers, loan applications, and the like without entering a bank branch.

Sections in this article:

• Introduction
• Deregulation, Bank Failures, and New Technology
• Further Legislation
• Early Years to the Federal Reserve
• General History
• International Banks
• Other Financial Institutions
• Types of Banks
• Bibliography

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