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

The 1970s saw an explosion of financial innovations, both in instruments and strategies, which altered radically financial structures and financial decisionmaking worldwide. These transformations reversed four decades characterized by the absence of significant innovations in the banking industry, as well as by the pervasive regulation of financial systems by the state. The paper focuses on the rise of liability management (or ‘marketization’ of banking), the most important process innovation of that period. Based on the development of wholesale interbank markets, liability management found its origins in the emergence and explosive growth of the Eurodollar market. The new financial technology dramatically changed the concept of liquidity in banking, forced banks to implement totally new strategies of active liability marketing, and required a new interactive banking management of the structure of assets and liabilities. By examining the institutional evolution of the Eurodollar market and the forces behind its breathtaking growth in the 1960s and 70s, the paper analyzes how technological change in information and communication technologies interacted with institutional changes and market forces in reshaping the global financial structure.