Essays in the Tradition of Jane D'Arista
Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo
Chapter 6: Nurturing US securities firms: a century of public policy
In rapid succession in March 2008, the Federal Reserve extended its securities lending facility to permit securities firms to exchange illiquid securities for Treasury securities, rescued Bear Stearns’ creditors and welcomed certain securities firms to something like its discount window. These may not be the last public policies adopted to sustain the US securities industry. But these moves were by no means the first. For almost a hundred years, law and practice favoured the development of securities markets and the evolution of a securities industry distinct from the banking system as a means to distribute government debt. This tilt did not start in the 1930s with the passage of Glass–Steagall Act separating the securities industry from commercial banking. Neither did the tilt disappear in the 1990s with the effective repeal of that Act. Bear Stearns’ tombstone, “born 1923, died 2008”, provides a better clue to the span of the public policy favouring the securities industry than does that of Glass–Steagall. This chapter reviews how public policy over the last nearly one hundred years nurtured the US securities industry. The approach is chronological. The next section considers how the Federal Reserve Act and early Federal Reserve operations sought to build up the securities market in New York at the expense of the established market in London and in the process nurtured independent securities firms.
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