Commercial and retail banking are often viewed as the unglamorous stepsisters of the financial sector. Financialization evokes Wall Street more than it does the banking industry: the covenantal nature of earnings calls, the pools of dollars swirling around the globe, the exotic financial instruments with nosebleed-inducing names like mortgage-backed securities and collateralized debt obligations, the “great vampire squid” that is Goldman Sachs. Yet this focus on powerful investment banks has obscured the transformation of postwar commercial banking that brought the industry closer in line with the logic of financialization.
This paper seeks to “bring banking back in” to the discussion about financialization by examining the changes to the liability side of commercial banks during the 1970s. The framers of the postwar banking regime had intended deposits to be the basis of a bank’s financing. Banks, they hoped, would mediate between a community’s savings and its lending needs. But beginning in the late 1960s, a series of competitive squeezes pushed bank managers to find new ways to raise funds by stretching the boundaries of their permitted activities. Commercial banks experimented with local notes that skirted both the Federal Reserve’s rate ceiling and the SEC’s prohibition on security underwriting, and they pushed for certificates of deposits in higher denominations. Managers also raised capital by issuing common stock, spurring a cottage industry of bank stock analysts who poured over share price and financing capabilities in search of a juicy acquisition target. Each of these changes deracinated commercial banks from their local deposit base and made them increasingly dependent on financial speculation for their continued growth.