Glass–Steagall Act - Wikipedia, the free encyclopedia

Glass–Steagall Act - Wikipedia, the free encyclopedia: Glass–Steagall Act

The Banking Act of 1933 (Pub.L. 73-66, 48 Stat. 162, enacted June 16, 1933) was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and imposed banking reforms, several of which were intended to control speculation.^[1] It is often referred to as the Glass–Steagall Act, after its Congressional sponsors, Senator Carter Glass (Democrat) of Virginia, and Representative Henry B. Steagall (Dem.) of Alabama.
The term Glass-Steagall Act, however, is most often used to refer to four provisions of the Banking Act of 1933 that limited commercial bank securities activities and affiliations between commercial banks and securities firms.^[2] Starting in the early 1960s federal banking regulators interpreted these provisions to permit commercial banks and especially commercial bank affiliates to engage in an expanding list and volume of securities activities.^[3] By the time the affiliation restrictions in the Glass-Steagall Act were repealed through the Gramm-Leach-Bliley Act in 1999, many commentators declared Glass-Steagall was already “dead.”^[4] Most notably, Citibank’s 1998 affiliation with Salomon Smith Barney, one of the largest US securities firms, was permitted under the Federal Reserve Board’s then existing interpretation of the Glass-Steagall Act.^[5]
Many commentators have stated that the Gramm-Leach-Bliley Act’s repeal of the affiliation restrictions of the Glass-Steagall Act was an important cause of the late-2000s financial crisis.^[6][7][8] Others have argued that the activities linked to the financial crisis were not prohibited (or, in most cases, even regulated) by the Glass-Steagall Act.^[9] Commentators have also argued that the ability of commercial banking firms to acquire securities firms (and of securities firms to convert into bank holding companies) helped mitigate the financial crisis.^[10]