The Eurodollar revolution in financial technology. Deregulation, innovation and structural change in Western banking in the 1960s-70s

Abstract

The 1970s saw an explosion of financial innovations, both in instruments and \nstrategies, which altered radically financial structures and financial decisionmaking \nworldwide. These transformations reversed four decades characterized \nby the absence of significant innovations in the banking industry, as well as by \nthe pervasive regulation of financial systems by the state. The paper focuses on \nthe rise of liability management (or ‘marketization’ of banking), the most \nimportant process innovation of that period. Based on the development of \nwholesale interbank markets, liability management found its origins in the \nemergence and explosive growth of the Eurodollar market. The new financial \ntechnology dramatically changed the concept of liquidity in banking, forced \nbanks to implement totally new strategies of active liability marketing, and \nrequired a new interactive banking management of the structure of assets and \nliabilities. By examining the institutional evolution of the Eurodollar market and \nthe forces behind its breathtaking growth in the 1960s and 70s, the paper \nanalyzes how technological change in information and communication \ntechnologies interacted with institutional changes and market forces in \nreshaping the global financial structure.

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