Act I
In 1998, Long-Term Capital Management failed. Its failure, well documented in Roger Lowenstein's 2000 book- "When Genius Failed", led to a potentially messy unwinding of trades and put stress to the financial system. True to form as a financial Maestro, Mr Alan Greenspan and his Federal Reserve team coordinated a LTCM bailout plan backed by several major investment banks. Though the plan involved only private capital, it is clear indication that the Fed subscribes to the "too big to fail" notion.
Act II
In 1999, after years of lobbying from the banking industry, the Glass-Steagall Act's provisions that prevented the formation of universal banks was repealed. The specific provison of the Act, enacted by U.S. Congress in 1933 with the intention to arrest the numerous bank-runs during the Great Depression, prohibited commercial banks that take in public deposits from owning and operating non-banking financial institutions such as insurers and investment banks. The idea behind was to ensure commercial banks stay focus in their main line of business and fire-wall them from any non-banking activities and related business risks.
Not long after President Bill Clinton has signed-off the Congress' bill to abolish the provision, consolidation began in the financial sector as universal banks are touted as cost-efficient providers of financial services at greater convenience. Banking groups that encompassed intermediary activities with various other financial services, e.g. insurance, brokerage, investment, are being formed through mergers and acquisitions. Some of these behemouths that exist today are: Citigroup (merger of Citicorp and Travelers Group), JP Morgan Chase (merger of JP Morgan & Co. and Chase Manhattan Corp). In order to compete, other international banking groups, such as UBS and HSBC, traditionally private and commercial banks, are setting up departments to provide investment and other banking services.
In 1998, Long-Term Capital Management failed. Its failure, well documented in Roger Lowenstein's 2000 book- "When Genius Failed", led to a potentially messy unwinding of trades and put stress to the financial system. True to form as a financial Maestro, Mr Alan Greenspan and his Federal Reserve team coordinated a LTCM bailout plan backed by several major investment banks. Though the plan involved only private capital, it is clear indication that the Fed subscribes to the "too big to fail" notion.
Act II
In 1999, after years of lobbying from the banking industry, the Glass-Steagall Act's provisions that prevented the formation of universal banks was repealed. The specific provison of the Act, enacted by U.S. Congress in 1933 with the intention to arrest the numerous bank-runs during the Great Depression, prohibited commercial banks that take in public deposits from owning and operating non-banking financial institutions such as insurers and investment banks. The idea behind was to ensure commercial banks stay focus in their main line of business and fire-wall them from any non-banking activities and related business risks.
Not long after President Bill Clinton has signed-off the Congress' bill to abolish the provision, consolidation began in the financial sector as universal banks are touted as cost-efficient providers of financial services at greater convenience. Banking groups that encompassed intermediary activities with various other financial services, e.g. insurance, brokerage, investment, are being formed through mergers and acquisitions. Some of these behemouths that exist today are: Citigroup (merger of Citicorp and Travelers Group), JP Morgan Chase (merger of JP Morgan & Co. and Chase Manhattan Corp). In order to compete, other international banking groups, such as UBS and HSBC, traditionally private and commercial banks, are setting up departments to provide investment and other banking services.
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