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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.”


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