Search
 
Analysis

The Loan Arranger Rides Again

What to do about the conflicts of interest prevalent in today’s corporate borrowing.

By John R. Cryan | February 07, 2019 at 11:26 AM

This year marks the 20th anniversary of the Financial Services Modernization Act (FSMA), also known as the Gramm–Leach–Bliley Act, signed into law in President Clinton’s second term. The goal of this legislation was to improve the efficiency and competitiveness of the financial services industry by removing legal barriers between commercial and investment banking. In reality, it laid the groundwork for an oligopolistic universal banking industry, in which a small number of institutions provide a wide variety of services across the commercial and investment banking spectrum.

Once implemented, the FSMA led to a massive consolidation of financial institutions. Today, according to FDIC data, more than 50 percent of all deposits in the United States reside with the four largest bank holding companies, and these are the same companies that sit atop the league tables in merger and acquisition (M&A) advisory, loans, bonds, and equity offerings.

In 1997, Alan Greenspan, then-chairman of the Federal Reserve, explained the rationale for the FSMA this way: “Many companies and individuals want to deal with a full-service provider that can handle their entire range of financing needs. This preference for ‘one-stop shopping’ is easy to understand. Starting a new financial relationship is costly for companies and individuals and, by extension, for the economy as a whole. It takes considerable time and effort for a customer to convey to an outsider a deep understanding of its financial situation. This process, however, can be short-circuited by allowing the customer to rely on a single organization for deposit services, loans, strategic advice, the underwriting of debt and equity securities, and other financial services.”

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

 

Recommended Stories

Corporate America Embraces Commercial Paper

Corporate America Embraces Commercial Paper

Alexandra Harris, Liz Capo McCormick & Jack Pitcher |

The short-term IOUs look increasingly attractive compared with locking in longer-term borrowing in a market beset by turbulence.

GM Sells Its First Green Bonds

GM Sells Its First Green Bonds

Caleb Mutua |

The automaker priced $2.25 billion of green bonds in two parts, in its maiden foray into ESG borrowing.

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2023 ALM Global, LLC. All Rights Reserved.