Glass-Steagall Act

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The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) and included banking reforms, some of which were designed to control speculation.^{[citation needed]} Some provisions such as Regulation Q that allowed the Federal Reserve to regulate interest rates in savings accounts were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Other provisions which prohibit a bank holding company from owning other financial companies were repealed in 1999 by the Gramm-Leach-Bliley Act. ^[1]

Senator Glass, co-sponsor of the bill that became the Glass-Steagall Act, and Senator Robinson: Mr. Glass: Here [section 21] we prohibit the large private banks whose chief business is investment business, from receiving deposits. We separate them from the deposit banking business. Mr. Robinson of Arkansas: That means if they wish to receive deposits they must have separate institutions for that purpose? Mr. Glass: Yes. The Court also rejected the argument that a bank and its holding company should be treated as a single entity for the purposes of sections 16 and 21, stating that the structure of the Glass-Steagall Act itself indicates the contrary. Id. at n. 24.

Although the Supreme Court in Board of Governors v. ICI did not consider section 21 in the context of a bank and its subsidiary, we are of the opinion that the Court's conclusion regarding section 21 and holding company affiliates is equally applicable in this instance. Thus, the FDIC does not believe that it would be warranted in extending the reach of the prohibitions of section 21 of the Glass-Steagall Act to bona fide subsidiaries of insured nonmember banks. The FDIC intends, however, to continue to monitor closely developments related to the securities activities of bank subsidiaries. ^[2]

Two separate United States laws are known as the Glass-Steagall Act. The Acts (Glass & Steagall) were both reactions of the U.S. government to cope with the economic problems which followed the Stock Market Crash of 1929.

Both bills were sponsored by Democratic Senator Carter Glass of Lynchburg, Virginia, a former Secretary of the Treasury, and Democratic Congressman Henry B. Steagall of Alabama, Chairman of the House Committee on Banking and Currency.

Contents 1 First Glass-Steagall Act 2 Second Glass-Steagall Act 2.1 Impact on other countries 3 Repeal of the Act 4 Emergency Banking Relief Act of 1933 5 External links 6 Reference List

[edit] First Glass-Steagall Act

The first Glass-Steagall Act was the first time currency (non-specie, paper currency etc.) was permitted to be allocated for the federal reserve. In addition, the G.S.A. separated investment banking from commercial banking, in effect curbing speculation. The resulting FDIC (Federal Deposit Insurance Corporation) insured all bank deposits up to $5000.

The Glass Steagall Act, as well as FDIC, CCC (Civilian Conservation Corps), Emergency Banking Act, and the TVA (Tennessee Valley Authority) were all products of Roosevelts 'Hundred Days', Roosevelt's first one hundred in office.^[3]

[edit] Second Glass-Steagall Act

The second Glass-Steagall Act, passed on 16 June 1933, and officially named the Banking Act of 1935, introduced the separation of bank types according to their business (commercial and investment banking), and it founded the Federal Deposit Insurance Company for insuring bank deposits.^{[citation needed]}

Literature in economics usually refers to this simply as the Glass-Steagall Act, since it had a stronger impact on US banking regulation.^{[citation needed]}

[edit] Impact on other countries

The Glass-Steagall Act has had influence on the financial systems of other areas such as mainland China which maintains a separation between commercial banking and the securities industries. ^{[4] [5]}

[edit] Repeal of the Act

On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Several economists and analysts have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. ^{[6] [7]}

This article may require cleanup to meet Wikipedia's quality standards. Please improve this article if you can. (April 2008)

Losses at financial firms from the mortgage collapse may eventually triple to $600 billion as defaults on home loans grow, says Zurich-based UBS AG. One reason banks are losing money is the repeal nine years ago of the 1933 Glass-Steagall Act, which separated commercial and investment banking after excessive risk- taking contributed to the Great Depression, Eveillard said.

The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.

Citigroup, which has fallen 36 percent since reporting in January the biggest quarterly loss in its 196-year history, may have writedowns of $15 billion this quarter, according to New York-based Merrill Lynch & Co. That would add to the $22 billion that Citigroup already lost because of the housing slump.

Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before utilizing loopholes in Glass-Steagall the allowed for temporary exemptions. With lobbying led by Roger Levy, the "finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, according to the Center for Responsive Politics..." These industries succeeded in their two decades long effort to repeal the act. Also, "The newly formed Citigroup announced only days after the deal that it had hired recently departed Treasurey Secretary Robert Rubin as a member of its three-person office of the chairman."

^[8]

``Glass-Steagall protected bankers against themselves, Eveillard said. ``Bankers are sheep. They don't mind going over the cliff if everyone else goes over the cliff.</ref>

[edit] Emergency Banking Relief Act of 1933

The Emergency Banking Act of 1933 is often confused with the Glass-Steagall Act,^{[citation needed]} however it was a separate and independent bill.^{[citation needed]}

Signed into law by President Franklin D. Roosevelt on March 9, 1933, the Act's primary function was to prohibit the hoarding of gold coins,^{[citation needed]} and did so by authorizing the United States Treasury to request all people and companies of the U.S. to send in their gold reserves.^{[citation needed]}

In addition, it ordered that all banks stop doing business until the Comptroller of the Currency had examined the soundness of such banks and had approved reopening.^{[citation needed]}

[edit] External links

• On the systematic dismemberment of the Act from PBS Frontline
• Back to the Twenties Through the Looking Glass - Steagall Hour long Wizards of Money MP3 explaining the Glass-Steagall Act, background to it and impact of it.

v • d • e New Deal Causes and legacy Great Depression · New Deal coalition · Brain Trust · American Liberty League · Critics of the New Deal Policies and acts Emergency Banking Act · Glass-Steagall Act · Economy Act · Public Works Administration · Agricultural Adjustment Act · Tennessee Valley Authority · Farm Security Administration · Rural Utilities Service (Act) · National Industrial Recovery Act · National Recovery Administration · Works Progress Administration · Social Security Act · Federal Emergency Relief Administration · Civilian Conservation Corps · Civil Works Administration · Securities Act of 1933 · National Labor Relations Act · Judiciary Reorganization Bill of 1937 Individuals Franklin Roosevelt · Harold Ickes · Henry Morgenthau · Huey Long · Herbert Hoover · Robert Wagner Category · Commons

[edit] Reference List