Economic Snapshot | Trade and Globalization

America’s changing financial landscape

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for November 17, 1999

America’s changing financial landscape

Since 1983, the United States has experienced an unprecedented stock market expansion. As a result, equity holdings by savers have increased rapidly. This has had clear negative implications for the providers of traditional financing, namely banks, savings institutions, and credit unions. Banks’ share of financial assets has declined from 50% in 1983 to 24% in June 1999. In contrast, mutual funds have grown most rapidly holding 17% of financial assets by mid 1999, an increase of 5% since 1983. With the repeal of the Glass-Steagall Act (also called Financial Modernization Act), Congress ensured that the shift from banks to mutual funds will continue, with detrimental effects for those who rely on bank financing — primarily small- and medium-sized businesses and low-income households.

The changes in the U.S. financial structure also reflect another disturbing trend. Mutual fund assets have grown significantly faster than pension fund asset. While pension funds increased their holdings of financial assets by 4 percentage points from 21% in 1983 to 25% in mid 1999, mutual funds more than tripled their financial market share. Thus, people rely increasingly on mutual fund savings for their retirement income — at least those who have the means to do so — rather than on employer-provided pension funds.

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