The processes of financialization over the past four to five decades has been spurred on by financial liberalization and the deregulation of the financial sector. The financial sector has lobbied and pushed for deregulation, as the interests of the financial sector press for removal of limitations on their activities, and the lifting of such limitations spurs the growth of the financial sector. Financial liberalization has been part of a much broader neoliberal agenda that promoted deregulation (and also privatization) more generally. It has been promoted by international organizations such as the IMF, and deregulation in terms of the abolition of regulations impeding market entry or restricting competition was one of the policies within the so-called Washington Consensus (Williamson 1990).

An intellectual climate for deregulation was created by academic writings portraying the expansion and evolution of the financial sector as potentially social efficient and in effect being held back by regulations (e.g., controls over the interest rates that could be paid on deposits and charged on loans, regulations on who could operate as a bank). Financial liberalization intends to slacken or lift what are perceived to be constraints on the operations of financial institutions and markets. It is undertaken in the belief that liberalized financial institutions and markets will promote the growth of finance, which in turn promotes savings and investment. Financial liberalization has domestic and external aspects – for example, domestically, the slackening of regulation and controls over interest rates and credit allocation; and, externally, in the reduction and removal of capital controls.

In this chapter, I begin by illustrating the nature and scale of financial liberalization in the past four decades. The intellectual and political support that aided the adoption of financial liberalization around the world and by the international organizations follows. The lifting of limitations on the financial institutions and their operations provided a strong stimulus for the expansion of the financial system. The pressures for financial liberalization arose from the financial sector itself, with intellectual backing provided by many economists and finance specialists and generally backed by international organizations. The promotion of financial liberalization, which often was undertakenby the ending of “financial repression”, as the name suggests, involved repressing the development of the financial sector through controls over prices (notably interest rates charged by banks) and quantities (of loans).