FINANCIAL SERVICES INDUSTRY 
In 2008 widespread instability in the nation’s housing and mortgage markets led to a variety of actions by the federal government. In July, federal regulators took control of IndyMac Bank of California, one of the nation’s largest savings and loans and the biggest U.S. lender to fail in more than two decades. This was followed up by the U.S. Treasury's September 2008 decision to take over Fannie Mae and Freddie Mac, two government sponsored enterprises responsible for one half of the nation’s mortgage loans.

Also in 2008 the Treasury Department unveiled plans for a sweeping overhaul of the regulation of the U.S. financial services industry. The proposal includes a consolidation of bank regulation, stronger oversight of mortgage lending, an optional federal charter (OFC) for insurance companies and measures that would give the Federal Reserve more authority to investigate the financial industry. The OFC measure would allow insurance companies to opt for a system of federal chartering, licensing, regulation and supervision or to choose to continue to be regulated by individual states.

If enacted the Treasury plan would mark the most significant changes to financial services regulation since the Gramm-Leach-Bliley Financial Services Modernization Act (GLB) which was passed in 1999. Prior to GLB, competition among the various segments of the financial services industry was strictly limited by law. GLB removed many of the Depression era barriers that restricted competition, allowing consumers a wider range of options.

When the act passed it was expected to spur massive cross-sector mergers. Mergers did occur but for the most part not among leading players. Banks have tended to concentrate on distributing insurance products by buying existing agencies and brokers rather than insurance companies or by establishing their own agencies. For their part, insurance companies have set up thrift or banking divisions rather than buying existing banks.

While the arrangement that provided the major impetus for the passage of GLB, Citigroup’s merger with Travelers Insurance Group, has been dissolved, the convergence of products and services continues to gather momentum as companies look for innovative ways to tap the growing market for financial products.
  • 1916 National Bank Act limiting bank insurance sales except in small towns

  • 1933 Glass-Steagall Act prohibiting commercial banks and securities firms from engaging in each other’s business

  • 1956 Bank Holding Company Act restricting bank holding company activities

  • 1995 VALIC U.S. Supreme Court decision allowing banks to sell annuities

  • 1996 Barnett Bank U.S. Supreme Court decision allowing banks to sell insurance nationwide

  • 1999 Gramm-Leach-Bliley Act allowing banks, insurance companies and securities firms to affiliate and sell each other’s products

  • 2002 Citigroup spins off its Travelers’ property/casualty insurance unit

  • 2005 Citigroup sells its Travelers' life unit

  • 2008 Federal governnment takes over U.S. mortgage giants Fannie Mae and Freddie Mac