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In 1981, under Secretary Donald Regan, the Treasury Department proposed a radical approach to bank deregulation. The Glass-Steagall Act was in full effect at the time, and it prohibited banks from engaging in underwriting or dealing in corporate securities and from being affiliated with any firm that engaged in these activities. The reasons for the 1981 Treasury plan were relatively simple. It was becoming clear even then that banks were losing their role as the primary sources of finance for the real economy. Increasingly, companies that had registered their securities with the SEC were going to the securities markets for financing, issuing bonds, notes, and commercial paper for their long, medium, and short-term financial needs. Once companies began to report regularly to the SEC on their financial condition, investors were able to decide for themselves the risks associated with fixed income securities. The intermediation of banks—with their special knowledge of the financial condition of their borrowers—was no longer necessary. It was much cheaper for issuers of securities to pay underwriting fees than to negotiate loan agreements with banks and pay the higher interest costs banks required. Since the 1980s that trend has continued. The banking industry has provided about $1.5 trillion in financing to business borrowers, while the securities industry has provided about ten times as much, $15 trillion. In 1965, bank lending to real estate was less than twenty-five percent; by 2008, over fifty-five percent of bank lending was to real estate, and continuing to rise. The reason, of

Remarks at the Indiana Law Review Symposium on "Law and the Financial Crisis": April 5, 2013