Deregulation of the financial sector
Recent changes in financial markets have
been sweeping: NOW accounts, failures of
large banks and thrift institutions, creation of
money market mutual funds, Merrill Lynch's
cash management account, American
Express's acquisition of Shearson, Sears' acquisition
of Dean Witter, and interstate mergers
of savings and loan associations. Two primary
driving forces behind the recent innovations
are the unexpected and abrupt increases in
the level and volatility of interest rates and the
major technological improvements in the
transmission, processing, and storage of information.
The impact of interest rate volatility
and technology on the financial system
was much more dramatic and severe than it
otherwise might have been because of a third
factor—the existence of a pervasive system of
regulations that limited and distorted the
responses of existing financial institutions
and contributed to the emergence of new
institutions.