The separation of banking and commerce: Origin, development, and implications for antitrust
DOI | 10.1177/0003603X8302800110 |
Date | 01 March 1983 |
Author | Bernard Shull |
Published date | 01 March 1983 |
Subject Matter | Article |
The Antitrust Bulletin/Spring 1983
The separation
of
banking
and commerce: origin, development,
and implications for antitrust
BY BERNARD SHULL *
I.
Introduction
255
Modern banking originally developed as an adjunct
of
private
commercial firms.' In the United States, however, it has long been
the policy
of
the federal government to keep banks separate from .
other forms
of
commerce; i.e., from directly engaging in com-
mercial and industrial enterprise. Recent developments, including
the acquisition
of
domestic banks by both foreign and domestic
conglomerates, the availability
of
close substitutes for banking
services through investment firms, the ownership of savings
institutions with "commercial banking" powers by commercial
and industrial firms, new policies implemented by bank regula-
tory agencies, and efforts in Congress to permit commercial
•Professor, Department of Economics, Hunter College of the City
University of New York.
IOn the development of modern banking, see A. P. Usher, The
Early History
of
Deposit Banking in Mediterranean Europe, vol. 1 (New
York: Russel and Russel, 1967); Raymond deRoover, Business, Banking
and Economic Thought (Chicago: University
of
Chicago Press, 1974);
and The Dawn
of
Modern Banking (New Haven, Conn.:
Yale
University
Press, 1979).
©1983by Federal Legal Publications, Inc.
256 The antitrust bulletin
banks
to
expand
into
new activities, suggest
that
the
policy
may
not
long be sustained.'
Those
who
favor the elimination
of
activity restrictions pro-
fess to see no reason why commercial
banks
should be treated
differently
than
other
private firms.
It
is
not
obvious to
them
that
their safety would be jeopardized additionally by
further
diversi-
fication,
and,
in fact,
that
it might be without. They assume
that
market
forces,
antitrust
and
other
restraints
can
be relied
upon
to
sustain competition in
both
banking
and
nonbanking
markets.'
Needless to say, existing legislation is based on
contrary
assump-
tions.'
In evaluating the changes taking place, it is useful to under-
stand
why activity restrictions were originally imposed.
The
early
history clarifies existing relationships between commercial
banks
and
the government.
It
provides abetter understanding
of
why
the
liberalization
of
activity restrictions has expanded
rather
than
2For a review of recent developments, see Donald T. Regan,
"Remarks Before the Manuel F. Cohen Memorial Lectureship," George
Washington
u.
Law School (September 8,
1981);
and Lyle Gramley,
"Financial Innovation and Monetary Policy," Federal Reserve Bulletin,
July
1982.
See also FinancialInstitutions Restructuring and Services
Act
of
1981, Hearings Before the Committee on Banking, Housing and
Urban Affairs,
u.S.
Senate, 97th Cong., 1st Sess. (October
1981).
3For an explicit statement of this position, see Robert A. Ham-
mond III, One Bank Holding Company Legislation
of
1970, Hearings
Before the Committee on Banking and Currency, House of Representa-
tives, 91st Cong., 2d Sess. (May
1970),
pp.
247-50
[hereinafter cited as
One Bank Holding Company]. For a more recent analysis in a similar
vein concluding that commercialbanks need not be separated from the
securities business, see Franklin R. Edwards. "Banks and Securities
Activities: Legal and Economic Perspectives on the Glass-Steagall Act,"
in The Deregulation
of
the Banking and Securities Industries (Lex-
ington, Mass.: Lexington Books,
1979),
pp.
273-94.
4Antitrust inadequacy was recognized in the passage of the Bank
Holding Company Act in
1956
and in amendments to that Act in
1970.
For an explicit statement on antitrust inadequacy, see Richard
W.
McLaren, One Bank Holding Company, supra note 3, at 238.
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