Major banks and financial service firms regularly lobbied for deregulation in the United States since the 1970s. The bulk of the deregulation was performed under the Bill Clinton administration, sandwiched between the two Bush administrations of George H.W. Bush (1988-1992) and George W. Bush (2000-2008). However, the two Bush administrations were far from inactive in the deregulation sphere.
The idea of deregulating financial markets is driven by the free market philosophy of social and economic relations. While the idea had been bandied about since the Nixon administration, it was the Reagan administration, with George H.W. Bush as vice president, that began the legislative push to end federal oversight over Wall Street, the banks and the financial services sector.
At the very end of the first Bush administration in 1992, one of the crucial deregulatory decisions was made to permit banks to function outside of their state boundaries. This was a major step in that it permitted banks to get involved with major commercial deals of international scope, and eventually eliminated smaller local banks. Banking, after this reform, became an oligarchy, dominated by a few major big-city banks involved in international speculation and investment.
Commercial vs. Investment Banking
Throughout the first Bush administration and the two Clinton terms, there was a move to merge commercial and investment banking. This had been forbidden by the Glass-Steagall Act of 1933. The act itself was totally repealed by Congress in 1999, the final year of the Clinton administration. As early as the 1980s, regulatory agencies under Republican administrations had reinterpreted the act so as to nullify this separation between the two kinds of banks. This meant that investment banking, dealing with industry, and commercial banking, dealing with financial markets, worked together. Banks were able to regulate themselves. Republicans believed that this deregulation would permit banks to diversify their portfolios. Instead, it created an institutionalized conflict of interest as the same banks who were to approve investments and weigh risk were the same ones performing the investment.
Accounting and auditing of both commercial and merchant banks was an important part of state oversight of the industry. Under both Bush and Clinton administrations, this was removed, permitting private, bank-owned firms to audit banks and their investments. Another conflict of interest was crated, as banks were empowered, in essence, to regulate and audit themselves. This led to sloppy bookkeeping, poor investment decisions and the explosion of sub-prime lending that would have caused a government crackdown in earlier years. As of 2003, this practice was removed by the passage of the Sarbines-Oxley Act. Signed, notably, by George W. Bush. At the same time, however, this same president invoked an obscure 1863 law forbidding states to regulate local banks. Therefore, the second Bush administration has a mixed record on financial deregulation. The Reagan and first Bush administration, as well as the Clinton administration were deregulators.