Preparing for the Next Financial Crisis

Constraints 111

− The arguments that justied the reforms of the 1930s and 1940s are chal-

lenged by a signicant number of empirical studies (Morrison, 2010). Kro-

szner and Rajan (1994) argue that the customers of universal banks in the

1920s do not appear to have particularly suered from conicts of interest.

Barth etal. (2001) show that constraining securities activities reduces bank

eciency and increases the risk of bank failures. In the light of this debate,

Rajan (1996) points out cautiously that there is no decisive evidence in fa-

vour of the superiority of the universal banking system.

2

In the US, the Glass-Steagall Act remained in place, fuelling a long economic

and legal debate until the late 1990s, despite the proliferation of ...