<p>Actually, in the literature Great Recession itself is not attributed primarily to financial deregulation. Financial deregulation played a significant and extremely  important role in the Great Recession, but saying it's the primary cause of the Great Recession would be exaggeration. It is generally agreed that root causes of the Great Recession were not just financial deregulation but also macroeconomic imbalances, underlying moral hazard issues inherent in the finance sector, past bailouts, changes in the tax code that incentivize more leverage and also some macro policy mistakes. The deregulation was additional catalyst that exacerbate the above but it is generally agreed that that it is very difficult to pin Great Recession on single primary cause (see Eichengreen Hall of Mirrors, <a href="https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2009_Interpreting_Causes.pdf" rel="nofollow noreferrer">Stiglitz 2009</a>, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1631069" rel="nofollow noreferrer">Verick et al  2010</a> or <a href="https://www.sciencedirect.com/science/article/pii/S1042957312000277?casa_token=BxyUO4ePGIoAAAAA:pBiPcZeUL-2Xtuz9RLZSjPNaafvtetrEtDjFOVp77hbYp1VbmAPg9U7cl8VzFWHQCWzAa3qr45AW" rel="nofollow noreferrer">Jagannathan et al 2010</a> ). Even when it comes to the deregulation itself, the role of Gramm-Leach-Bliley Act is not settled and disputed (see <a href="https://link.springer.com/chapter/10.1007/978-1-4419-6637-7_2" rel="nofollow noreferrer">Wallison 2010</a>). It can be argued it contributed to the Too Big To Fail problem that further exhibited moral hazard but far more important was deregulation that allowed banks to become extremely overleveraged such as SECs 2004 decision to allow more leverage or completely somehow letting shadow banks to fly under the radar. In fact literature shows universal banks (which were prohibited by Glass-Steagall) are not important contributors to financial instability e.g. see <a href="https://www.sciencedirect.com/science/article/pii/S106297691200004X?casa_token=fEMlx7Y85_QAAAAA:yvLSCG6mEqCJWoCIxdUT3v8AYk9m1nOoDjgdbsm4Ee9JwhLsni5dOMApHSCFZOgLIG0MKUnmbi8r" rel="nofollow noreferrer">Dietrich et al 2012</a>).</p>
<p>Now getting to your main question, measuring financial regulation across time is tricky business since you cannot simply just count the number of laws. However, there is consensus that the financial regulation has increased significantly since 2009 (<a href="https://mpra.ub.uni-muenchen.de/93447/1/MPRA_paper_93447.pdf" rel="nofollow noreferrer">Rashid, 2019</a>; <a href="https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.33.1.61" rel="nofollow noreferrer">Tarullo 2019</a>)</p>
<p>Some of the new regulations are similar to the old ones. For example, 2010 Dodd-Frank act can be said to be somewhat inspired by the Glass-Steagall in some provisions, even though as explained by Tarullo (2019) Dodd-Frankt largely eschewed the old regulatory solutions and did not reintroduce separation of commercial and investment banking (as discussed above that is likely not main problem when it comes to financial stability anyway).</p>
<p>Consequently, modern bank regulation is fundamentally different from the old one (at least in the US), reflecting progress of the science on this issue. Modern banking regulation places emphasis not just on microprudential policies, but on macroprudential policies, systemic stability, stress testing etc and the idea of clamping down on universal banking was more or less eschewed.</p>
<p>For example, the Dodd-Frank focuses quite a lot on macroprudential policies and systemic stability and later amendments (e.g.  Collins amendment )  also pushed for more stringent capital requirements for large banks (Tarullo 2019).  Basel III (which is international regulation but it affects US as well - at least some provisions do) also significantly improves the capital standards of banks.</p>
<p>Moreover, the stress-test introduced by Dodd-Frank and administered by Fed got more stringent and risk sensitive over time ( Hirtle and Lehnert 2014).</p>
<p>Shadow banking is one area where the modern regulation is seriously lacking (Tarullo 2019), but that is not to say that Glass-Steagall could solve that issue. The problem with shadow banks is that they are technically not banks even though they behave like banks and due to various issues such as regulatory arbitrage they are extremely difficult to regulate.</p>
<p>Consequently, to sum up yes the financial regulation since the Great Recession has increased, some of the new rules were based on the old, but for most part the old regulatory framework was eschewed because in retrospective it was not so great anyway (Glass-Steagall virtually completely ignores macroprudential issues which are now agreed to be <em>extremely</em> important). Rather the new regulation is based on our current science and understanding of the market failures and issues in the financial sector, which is actually to a certain degree informed by the lessons learned from the Great Recession. </p>

CC BY-SA 4.0
2021-07-10T03:23:00.837Z
Moody, etc. are still in business. Who is paying for their "services", if the market/regulators learned from their mistakes?
MWB
CC BY-SA 4.0
2021-07-10T12:41:52.723Z
@bobcat 1. Rating agencies are now more regulated then ever. 2. The problem wasn’t caused primarily by rating agencies, rather problem was that banks with AAA rated debt were allowed to extremely overleverage themselves, even if rating agencies would accurately rate risk this would create huge crisis once some huge random 5-6 sigma shock would hit the economy. 3. As explained in my answer above modern scholarship shows it’s capital buffers and stress tests that are important, modern stress tests often have scenarios where even highly rated debt can default etc. so this is moot point
1muflon1
CC BY-SA 4.0
2021-07-09T21:21:55.427Z
2021-07-09T21:21:55.427Z
1muflon1
<p>The 2007-2008 financial crisis <a href="https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176" rel="nofollow noreferrer">was largely attributed</a> to <a href="https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#Deregulation_and_lack_of_regulation" rel="nofollow noreferrer">several deregulation measures</a>, especially the <a href="https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act" rel="nofollow noreferrer">Gramm-Leach-Bliley act</a>. Have any of these measures been rolled back after the crisis, or new ones introduced to prevent a similar crisis?</p>

<finance><united-states><housing><financial-crises><law>
Have the deregulation measures that caused the 2007-2008 crisis been rolled back?
MWB
# Have the deregulation measures that caused the 2007-2008 crisis been rolled back?

(Asked by: username_0 on 2021-07-09)

The 2007-2008 financial crisis [was largely attributed](https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176) to [several deregulation measures](https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#Deregulation_and_lack_of_regulation), especially the [Gramm-Leach-Bliley act](https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act). Have any of these measures been rolled back after the crisis, or new ones introduced to prevent a similar crisis?

**Tags:** finance, united-states, housing, financial-crises, law


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## 1 answers

### Answer by username_1 on 2021-07-09. Score: 2 | Accepted answer

Actually, in the literature Great Recession itself is not attributed primarily to financial deregulation. Financial deregulation played a significant and extremely  important role in the Great Recession, but saying it's the primary cause of the Great Recession would be exaggeration. It is generally agreed that root causes of the Great Recession were not just financial deregulation but also macroeconomic imbalances, underlying moral hazard issues inherent in the finance sector, past bailouts, changes in the tax code that incentivize more leverage and also some macro policy mistakes. The deregulation was additional catalyst that exacerbate the above but it is generally agreed that that it is very difficult to pin Great Recession on single primary cause (see Eichengreen Hall of Mirrors, [Stiglitz 2009](https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2009_Interpreting_Causes.pdf), [Verick et al  2010](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1631069) or [Jagannathan et al 2010](https://www.sciencedirect.com/science/article/pii/S1042957312000277?casa_token=BxyUO4ePGIoAAAAA:pBiPcZeUL-2Xtuz9RLZSjPNaafvtetrEtDjFOVp77hbYp1VbmAPg9U7cl8VzFWHQCWzAa3qr45AW) ). Even when it comes to the deregulation itself, the role of Gramm-Leach-Bliley Act is not settled and disputed (see [Wallison 2010](https://link.springer.com/chapter/10.1007/978-1-4419-6637-7_2)). It can be argued it contributed to the Too Big To Fail problem that further exhibited moral hazard but far more important was deregulation that allowed banks to become extremely overleveraged such as SECs 2004 decision to allow more leverage or completely somehow letting shadow banks to fly under the radar. In fact literature shows universal banks (which were prohibited by Glass-Steagall) are not important contributors to financial instability e.g. see [Dietrich et al 2012](https://www.sciencedirect.com/science/article/pii/S106297691200004X?casa_token=fEMlx7Y85_QAAAAA:yvLSCG6mEqCJWoCIxdUT3v8AYk9m1nOoDjgdbsm4Ee9JwhLsni5dOMApHSCFZOgLIG0MKUnmbi8r)).

Now getting to your main question, measuring financial regulation across time is tricky business since you cannot simply just count the number of laws. However, there is consensus that the financial regulation has increased significantly since 2009 ([Rashid, 2019](https://mpra.ub.uni-muenchen.de/93447/1/MPRA_paper_93447.pdf); [Tarullo 2019](https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.33.1.61))

Some of the new regulations are similar to the old ones. For example, 2010 Dodd-Frank act can be said to be somewhat inspired by the Glass-Steagall in some provisions, even though as explained by Tarullo (2019) Dodd-Frankt largely eschewed the old regulatory solutions and did not reintroduce separation of commercial and investment banking (as discussed above that is likely not main problem when it comes to financial stability anyway).

Consequently, modern bank regulation is fundamentally different from the old one (at least in the US), reflecting progress of the science on this issue. Modern banking regulation places emphasis not just on microprudential policies, but on macroprudential policies, systemic stability, stress testing etc and the idea of clamping down on universal banking was more or less eschewed.

For example, the Dodd-Frank focuses quite a lot on macroprudential policies and systemic stability and later amendments (e.g.  Collins amendment )  also pushed for more stringent capital requirements for large banks (Tarullo 2019).  Basel III (which is international regulation but it affects US as well - at least some provisions do) also significantly improves the capital standards of banks.

Moreover, the stress-test introduced by Dodd-Frank and administered by Fed got more stringent and risk sensitive over time ( Hirtle and Lehnert 2014).

Shadow banking is one area where the modern regulation is seriously lacking (Tarullo 2019), but that is not to say that Glass-Steagall could solve that issue. The problem with shadow banks is that they are technically not banks even though they behave like banks and due to various issues such as regulatory arbitrage they are extremely difficult to regulate.

Consequently, to sum up yes the financial regulation since the Great Recession has increased, some of the new rules were based on the old, but for most part the old regulatory framework was eschewed because in retrospective it was not so great anyway (Glass-Steagall virtually completely ignores macroprudential issues which are now agreed to be *extremely* important). Rather the new regulation is based on our current science and understanding of the market failures and issues in the financial sector, which is actually to a certain degree informed by the lessons learned from the Great Recession.

> **Comments:**
> **username_0**: Moody, etc. are still in business. Who is paying for their "services", if the market/regulators learned from their mistakes?  
> **username_1**: @bobcat 1. Rating agencies are now more regulated then ever. 2. The problem wasn’t caused primarily by rating agencies, rather problem was that banks with AAA rated debt were allowed to extremely overleverage themselves, even if rating agencies would accurately rate risk this would create huge crisis once some huge random 5-6 sigma shock would hit the economy. 3. As explained in my answer above modern scholarship shows it’s capital buffers and stress tests that are important, modern stress tests often have scenarios where even highly rated debt can default etc. so this is moot point  

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