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Warren, Gorham & Lamont




The years 1980 and 1981 were marked by a continuation and acceleration of change in the nation's financial institutions in general and in depository institutions in particular. Until recently, the banking and thrift industries have been unique in possessing the capacity to thrive in a changing economy without changing very significantly themselves. This phenomenon was largely attributable to a regulatory environment that protected depository institutions, minimizing competition from unregulated financial entities and imposing a form of organization that permitted institutions to thrive while conducting their activities in traditional ways. The advent of stubbornly high inflation and historically high interest rates in the late 1970's led to a series of innovations outside the regulatory scheme, and depository institutions faced competition in areas over which they had retained a virtual monopoly. The development and growth of money market mutual funds, the widespread use of commercial paper to replace bank financing, the growth of foreign bank entry into the United States, the creation of non-bank financial giants - these developments, combined with unprecedented technological developments, began a process that has left banks and thrifts faced with competition in spheres traditionally immune from challenge while they are effectively blocked by regulatory restraints from engaging in many of the lucrative activities open to their new competitors. This has led to unprecedented pressures to alter the regulatory structure.



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