Paving the Road to “Too Big to Fail†: Business Interests and the Politics of Financial Deregulation in the United States

The debate over the political power of business has witnessed a revival after the global financial crisis of 2007—2009. We begin by arguing that business political fragmentation or unity has important consequences for policy outcomes. The structure of the U.S. government is conducive to incremental policy changes, often in response to business pressures. In turn, these changes shape the political interests and alliances of business. We illustrate this dynamic through an analysis of the political processes leading to the enactment of the Financial Modernization Act (FMA) of 1999, which repealed Depression-era regulations and allowed commercial banks to enter the securities and insurance business and vice versa. The FMA condoned the emergence of largely unregulated diversified financial institutions, which proved “too big to fail†during the crisis. Several factors contributed to the FMA: political institutions, international competition, the ideological convergence of the Republican and Democratic parties, and the political interests of financial industry actors.