Market Discipline and Fed Lending

It's a pleasure to address this Conference once again. I say once again because I summarized a part of my Ph.D. thesis, which dealt with modeling individual bank behavior, at the 1972 Conference. If this pattern continues, I'll make my next appearance in 2028, when I'll be 88. Maybe by then I will have finally attained wisdom. The theme of this year's Conference is the extraordinary current transformation of the financial services industry and the implications for financial services regulation. It's hard to imagine a more appropriate topic. From my perspective the transformation has been generally positive. With the elimination of interest rate ceilings in the early 1980s and the final removal of branching restrictions by the Riegle-Neal Act in June 1997 the industry is far more competitive than it was two decades or even one decade ago. Moreover, a case can certainly be made that competition, efficiency and customer convenience have all been enhanced by the steady erosion of Glass-Steagall product restrictions in the 1980s and ‘90s, and their final demise last year with Gramm-Leach-Bliley.