The Glass-Steagall Act: An Overview of the Law and Its Repeal

Glass-Steagall Act

(Banking Act of 1933) – Established the Federal Deposit Insurance Corporation and included banking reforms, some designed to control speculation. Repealed in 1999, opening the door to scandals involving banks and stock investment companies.

The Glass-Steagall Act was a law passed in 1933 in response to the banking crisis of the Great Depression. The act was officially known as the Banking Act of 1933 and it aimed to restore confidence in the financial system by separating commercial banking from investment banking.

Under the act, commercial banks were prohibited from engaging in risky activities such as trading securities and underwriting new issuances. Similarly, investment banks were restricted from accepting deposits from the general public, thus eliminating the risk of banks using customer deposits for speculative investments.

The Glass-Steagall Act served as the basis for a stable banking system in the United States for over 60 years. However, the act began to come under scrutiny in the 1980s and 1990s as banks began to argue that the restrictions placed on them were hampering their ability to compete globally. In 1999, the Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, allowing for the consolidation of commercial and investment banks.

Many experts argue that the repeal of the Glass-Steagall Act was a contributing factor to the 2008 financial crisis. The argument is that the removal of the regulations allowed banks to become more involved in risky, speculative investments, leading to the massive failures that occurred during the crisis.

In conclusion, the Glass-Steagall Act was a crucial piece of legislation that aimed to prevent financial institutions from engaging in speculative activities that could put customer deposits at risk. Its repeal in 1999 is believed to be a contributing factor in the 2008 financial crisis.

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