U.S. v. Japanese Regulatory Responses to the Financial Institution Crises of the 1980s: The Seductive Appeal of the Cover Up

23 Pages Posted: 16 Jan 2010

See all articles by William K. Black

William K. Black

University of Missouri at Kansas City - School of Law

Date Written: June 18, 2005

Abstract

Economists have dominated U.S. scholarship about the S&L debacle and they have universally viewed the regulatory response as horrific. This paper argues that the conventional economic wisdom is badly flawed. The U.S. regulatory response to the debacle was disastrous – when economists shaped it in the critical years (1982-1983) that produced the debacle and would have produced catastrophic losses had the policies been maintained. The Reagan administration wanted the policies maintained and even expanded. The administration’s goal was to block its own appointee Federal Home Loan Bank Board Chairman Edwin Gray from “reregulating” and “resupervising” the industry. Chairman Gray, and a great deal of luck, combined to block that administration effort.

Mr. Gray’s policies proved extraordinarily successful. They explain why the S&L debacle was contained at a far lower cost that did not harm the overall U.S. economy and resolved far more expeditiously than was the still unresolved Japanese banking crisis of the 1980s that has impaired the Japanese economy for 15 years. This paper explains why the interaction of institutional factors that allowed for far greater regulatory independence in the U.S. and an extraordinary regulator leader allowed the U.S. to avoid a Japanese-style catastrophe.

Keywords: Corporate law, Financial crisis, Financial regulation, Banking, Banking regulation, Securities, Securities regulation, Control fraud, Fraud

JEL Classification: K14, K22, K23, K42, G18, G28, G38

Suggested Citation

Black, William K., U.S. v. Japanese Regulatory Responses to the Financial Institution Crises of the 1980s: The Seductive Appeal of the Cover Up (June 18, 2005). Available at SSRN: https://ssrn.com/abstract=1536524 or http://dx.doi.org/10.2139/ssrn.1536524

William K. Black (Contact Author)

University of Missouri at Kansas City - School of Law ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

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