Financial Deregulation in France

The deregulation of the financial system in France in the 1980s and the French commitment to the freedom of capital, as recently pointed out by Rawi Abdelal, is ‘quite curious’ and even doubly paradoxical: how to understand, first, that the financial liberalization has occurred while the left was in power? Second, how to explain that Colbertist France took the lead for financial deregulation at a world scale feeding the hypothesis of a so-called ‘Paris Consensus’? Based on the primary archives of the French Treasury and of the Banque of France this contribution aims to demonstrate that the financial deregulation in France is managed by the State in order to facilitate its increasing indebtedness on a globalizing money market.

Drivers of Financial Deregulation in Japan

This chapter aims to identify the real drivers of financial deregulation in Japan. Japan’s financial deregulation drivers clearly changed over time. In the late 1960s and the early 1970s, the liberalization of capital movement in Japan caused an administrative shift from its conventional rigid regulatory regime. From the mid-1970s, a rapid increase of Japanese government bonds issuances, as well as financial innovation, acted to remove the barriers between the banking and the securities businesses. From the mid-1980s, the pressure from the United States, as well as from domestic depositors and banks, urged the Japanese financial authorities to liberalize the financial market. It is evident that the drivers of financial deregulation in Japan in the 1980s were not only the pressure from abroad (as generally accepted), but that the deregulation was also driven by domestic interests including fiscal reasons.

Deregulation, Regulatory Convergence, or Escaping from Inefficiency?

This chapter focuses on the rationale and objectives of financial deregulation in Italy from the late 1970s to the early 1990s. Deregulation appears as a complex adjustment process to major changes, within the domestic economy and in the international environment, more than the result of a clear-cut plan. In fact, Italy had to cope with difficulties in the manufacturing sector, an exogenous, anti-inflationary, change in monetary policies and a new European legal framework. Her adjustment process largely depended upon the ability of the Bank of Italy, the central bank, to provide sounding analyses and promote reforms in accordance with the emerging European regulatory framework. In the long regulatory cycle started in the mid-1970s the Bank of Italy acted as the main actor, whilst lawmakers had a minor part until 1990, when a new banking law eventually abolished the Banking Law of 1936 catching up with the second European Banking Directive.

EU Bank Regulation after the Great Financial Crisis

The chapter outlines the main features of the post-crisis regulatory regime for banks in the European Union. It traces the evolution of the approach taken by EU legislators which transformed the deregulation which prevailed prior to the Great Financial Crisis (GFC) into a regulatory regime which though far from financial repression known in the 1970s, is oriented towards functionally prioritizing financial stability and banks’ functions in the broader economy. This is achieved through co-responsibilization of the banking sector for public objectives, explicit regulation of structure and operations as well as far-reaching powers granted to new oversight authorities. The chapter explains the features of such a new bespoke regulatory regime for EU cross-border banking drawing on the new framework for bank crisis prevention and management, that is EU resolution law.

Introduction

The ambition of this book is to explore the various dimensions of the transition from a state-led to a market-led financial system from the 1970s onwards. In the late 1970s and 1980s, the phrase ‘deregulation’ became a particularly popular term in regulatory spheres, but what kind of change exactly deregulation was? The nine chapters of the book show that if some rules were indeed revoked, particularly in certain countries, other regulations were introduced, particularly in the field of prudential supervision. The combination of an increased surveillance and of more liberal rules marked the end of the twentieth century and differentiated this period from the late- nineteenth-century laissez-faire approach. Rising public debt, new monetary policies, globalization, and weak economic growth were often the main factors underlying the deregulatory moves in the financial sector.

The Advent of a New Banking System in the US

The 1980s was one of the most eventful and consequential decades in the development of the US financial system. During this decade, the regulatory framework established in response to the Great Depression started to be dismantled. These regulatory changes were a key driving force behind the transformation of the banking sector. Moreover, the end of the decade saw the most serious banking crisis since the Great Depression. This pattern of deregulation and crises, which started in the 1980s, has continued until the present. Thus, it is worth study this period in greater detail and the consequences it has had for the US banking and financial system. The chapter argues that the deregulatory process that started in the 1980s in the banking industry in the United States has changed the profile of this sector. Between the Great Depression and the 1980s, the banking sector in the United States was a stable, yet not competitive sector. The financial deregulation of the 1980s changed this sector to a competitive, yet unstable one. This deregulatory process occurred mostly as a response to the economic conditions of the 1970s.

Financial Deregulation in the United Kingdom

Was there financial deregulation in the United Kingdom in the late twentieth century? There had been several episodes of financial regulation and deregulation in British financial history. Deregulation from the 1820s to the 1870s was followed by a long period of stable and light regulation. That lasted until WWII. After that the trend was upwards. The first statutory banking regulations in more than 150 years were introduced in 1979 and then in 1987. These Acts were accompanied or followed by Basel rules. In the 1990s the Financial Services Authority was established and regulation increased steeply thereafter. The compliance burden rose steadily throughout. Deregulation in these years is hard to find.

Fifty Years of Financial Regulation in Germany

This chapter gives an overview on how financial market regulation evolved in Germany since the 1970s. The picture presented is somehow contradicting, as it seems that banking regulation and capital market regulation evolved in a quite different way. As far as banking regulation is concerned, it will be shown that starting with the Herstatt crisis in 1974 there was a clear trend towards tightening and increasing the regulatory perimeter. By analysing how the budget of the German banking supervision authority evolved since 1988, this claim will also be corroborated empirically. The picture with respect to capital market regulation is quite different, however. Here, the regulatory process started back in the year 1990 and, at least for the first decade, it was focused towards liberalizing and modernizing the German capital market. It will be argued that there is an underlying public choice mechanism able to explain this different development in two adjacent areas of financial market regulation.

Removing Obstacles to Integration

European integration played an important role in liberalizing banking and financial markets. Based on archival material from central banks, commercial banks, and bankers’ association in France and the United Kingdom, this chapter sheds light on the role of the European Economic Community in three areas: the realization of a common market in banking, the liberalization of capital movements, and the broader financial integration in the EEC. It argues that in the EEC, financial liberalization had two motives: the deepening of the Common Market, and consolidation of European monetary cooperation/integration. Removing obstacles to integration was the main way used to achieve these goals. The chapter further challenges the work of Rawi Abdelal, which overstates the role of France and downplays the role of the United Kingdom in the liberalization of the financial sector.