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Recent U.S. legislation (Gramm-Leach-Bliley Act) allows commercial banks to enter merchant banking, i.e. hold equity in non-financial firms. A stylised auction-theoretic model is developed to investigate the effects of bank equity stakes in firms on the competition in bank loans. The main finding is that the largest stake confers a competitive advantage to the holding bank and constitutes a barrier to entry in equity acquisition, resulting in high interest rates charged to firms. This finding unearths an antitrust dimension in the controversial debate on the separation of banking and commerce in the U.S., and provides a theoretical basis for recent empirical evidence on the relationship between bank equity holdings and the cost of debt finance in Germany and Japan.

This Article describes the background of the federal securities laws and the assumptions about full disclosure that where made to justify the intrusive legislation. It also considers the problems encountered by the SEC in the nearly seven decades that have passed since the Stock Market Crash of 1929 and then reviews the market meltdown over the last three years and describes how full disclosure regulation failed. Finally, the author focuses on a principal flaw in the system – the misguided effort to turn accountants into policeman.

This Article describes the background of the federal securities laws and the assumptions about full disclosure that where made to justify the intrusive legislation. It also considers the problems encountered by the SEC in the nearly seven decades that have passed since the Stock Market Crash of 1929 and then reviews the market meltdown over the last three years and describes how full disclosure regulation failed. Finally, the author focuses on a principal flaw in the system – the misguided effort to turn accountants into policeman.

This article traces the history of the growth and regulation of banking services in the United States. That history will show how the existing regulatory structure was developed in response to demands of the Civil War and a populist crusade against the “money trust.” That effort reached its zenith with the New Deal legislation of the 1930s, but began to fall apart as financial services consolidated. The article will then show how the financial services industries (banking, insurance, securities and derivatives) began to merge in their product base while at the same time separating on a fault line between institutional and retail customers. After reviewing this history, the article will discuss the future of banking regulation under the functional regulatory structure adopted by the recently adopted Gramm-Leach-Bliley Act for financial services holding companies.

This article traces the history of the growth and regulation of banking services in the United States. That history will show how the existing regulatory structure was developed in response to demands of the Civil War and a populist crusade against the “money trust.” That effort reached its zenith with the New Deal legislation of the 1930s, but began to fall apart as financial services consolidated. The article will then show how the financial services industries (banking, insurance, securities and derivatives) began to merge in their product base while at the same time separating on a fault line between institutional and retail customers. After reviewing this history, the article will discuss the future of banking regulation under the functional regulatory structure adopted by the recently adopted Gramm-Leach-Bliley Act for financial services holding companies.